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** **

 

**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**Washington, D.C. 20549**

 

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**Form 10-Q**

 
| **x** | ** ** | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934** |
|-------|------------|---------------------------------------------------------------------------------------------------------|

 

**For thequarterly period ended September 30, 2008**

 

**OR**

 
| **o** | ** ** | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934** |
|-------|------------|----------------------------------------------------------------------------------------------------------|

 

**For the transition periodfrom           to           **

** **

**Commission File Number 0-191551**

** **

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**Atlantic Tele-Network, Inc.**

(Exact name ofregistrant as specified in its charter)

 

| **Delaware**                                                     | ** ** | **47-0728886**                            |
|------------------------------------------------------------------|------------|-------------------------------------------|
| (State or  other jurisdiction of  incorporation or organization) |       | (I.R.S.  Employer  Identification Number) |

 

**10 Derby SquareSalem, MA 01970(978) 619-1300**

(Registrant’s Telephone Number, including Area Code)

 

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Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days. Yes x No o

 

Indicate by check mark whether the registrant is a large acceleratedfiler, an accelerated filer, a non-accelerated filer, or a smaller reportingcompany. See definitions of “large accelerated filer,” “accelerated filer,” and“smaller reporting company” in Rule 12b-2 of the Exchange Act. (Checkone):

 
| Large  accelerated filer o                     |   | Accelerated  filer x         |
|------------------------------------------------|--------|-----------------------------------|
|                                           |   |                              |
| Non-accelerated  filer o                       |   | Smaller  reporting company o |
| (Do  not check if a smaller reporting company) |   |                              |

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act): Yes o No x

 

As of November 10,2008, the registrant had outstanding 15,201,110 shares of its common stock($.01 par value).

 

 

 

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**ATLANTICTELE-NETWORK, INC.**

 

FORM 10-QQuarter Ended September 30, 2008

 
| CAUTIONARY STATEMENT REGARDING FORWARD  LOOKING STATEMENTS |                                                                                                                   |
|------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------|
|                                                       |                                                                                                                   |   |
| PART I—FINANCIAL INFORMATION                     |                                                                                                                   |
|                                                       |                                                                                                                   |   |
| Item 1                                                | Unaudited Condensed Consolidated Financial Statements                                                                  |   |
|                                                       |                                                                                                                   |   |
|                                                       | Condensed Consolidated Balance Sheets at December 31,  2007 and September 30, 2008                           | 4 |
|                                                       |                                                                                                                   |   |
|                                                       | Condensed Consolidated Statements of  Operations for the three and nine months ended September 30, 2007 and  2008 | 5 |
|                                                       |                                                                                                                   |   |
|                                                       | Condensed Consolidated Statements of Cash  Flows for the nine months ended September 30, 2007 and 2008            | 6 |
|                                                       |                                                                                                                   |   |
|                                                       | Notes to  Unaudited Condensed Consolidated Financial Statements                                                        | 7-18 |
|                                                       |                                                                                                                   |   |
| Item 2                                                     | Management’s Discussion and Analysis of  Financial Condition and Results of Operations                            | 18-31 |
|                                                       |                                                                                                                   |   |
| Item 3                                                     | Quantitative and Qualitative Disclosures  About Market Risk                                                            | 31 |
|                                                       |                                                                                                                   |   |
| Item 4                                                     | Controls and Procedures                                                                                                | 31 |
|                                                       |                                                                                                                   |   |
| PART II—OTHER INFORMATION                        |                                                                                                                   |
|                                                       |                                                                                                                   |   |
| Item 1                                                     | Legal Proceedings                                                                                                      | 32 |
|                                                       |                                                                                                                   |   |
| Item1A                                                     | Risk Factors                                                                                                           | 32 |
|                                                       |                                                                                                                   |   |
| Item 6                                                     | Exhibits                                                                                                               | 32 |
|                                                       |                                                                                                                   |   |
| SIGNATURES                                                 |                                                                                                                   | 33 |
|                                                            |                                                                                                                        |  |  |

 

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**Cautionary Statement Regarding Forward-LookingStatements**

** **

ThisQuarterly Report on Form 10-Q (or the “Report”) contains forward-lookingstatements relating to, among other matters, the future financial performanceand results of operations of ATN and its subsidiaries, including the relativecontributions of Commnet, Sovernet and BDC; the competitive environment in ourkey markets, demand for our services and industry trends; the outcome oflitigation and regulatory matters; our continued access to the credit andcapital markets; the pace of our network expansion and improvement, includingour realization of the benefits of these investments; and management’s plansand strategy for the future.  Theseforward-looking statements are based on estimates, projections, beliefs, andassumptions and are not guarantees of future events or results.  Actual future events and results could differmaterially from the events and results indicated in these statements as aresult of many factors, including, among others, (1) significant politicaland regulatory risk facing our exclusive license to provide domestic local exchangeand international long distance telephone services in Guyana; (2) anysignificant decline in the price or volume of international long distance callsto Guyana; (3) increased competition affecting our businesses; (4) theregulation of rates that GT&T may charge for local wireline telephoneservice; (5) significant tax disputes between GT&T and the Guyanesetax authorities; (6) the derivation of a significant portion of our U.S.wireless revenue from a small number of customers;  (7) our ability to maintain favorableroaming arrangements; (8) economic, political and other risks facing ourforeign operations; (9) regulatory changes affecting our businesses; (10) rapidand significant technological changes in the telecommunications industry; (11)our reliance on a limited number of key suppliers and vendors for timely supplyof equipment and services relating to our network infrastructure; (12) any lossof key members of management; (13) the adequacy and expansion capabilities ofour network capacity and customer service system to support our customergrowth; (14) dependence of our wireless and wireline revenues on thereliability and performance of our network infrastructure; (15) the occurrenceof severe weather and natural catastrophes; and (16) our ability to realize thevalue that we believe exists in businesses that we acquire. These and otheradditional factors that may cause actual future events and results to differmaterially from the events and results indicated in the forward-lookingstatements above are set forth more fully under Item 1A “Risk Factors” of ourAnnual Report on Form 10-K for the year ended December 31, 2007 (the “2007Form 10-K”), which is on file with the SEC.  We undertake no obligation to update theseforward-looking statements to reflect actual results, changes in assumptions orchanges in other factors that may affect such forward-looking statements.

 

In this Reportthe words “we,” “our,” “ours” and “us” refer to Atlantic Tele-Network, Inc.and its subsidiaries, unless the context indicates otherwise. ClearChoiceTM is aservice mark of one of our subsidiaries. This Report also contains othertrademarks, service marks and trade names that are the property of others.

 

Reference todollars ($) refer to U.S. dollars unless otherwise specifically indicated.

 

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**PART I—FINANCIALINFORMATION**

**Item 1.  Unaudited Condensed Consolidated FinancialStatements**

 

**ATLANTICTELE-NETWORK, INC. AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED BALANCE SHEETS**

**(Unaudited)**

**(Dollarsin thousands, except per share amounts)**

 
| ** **                                                                                                                                                                                     | ** ** | **December 31,** | ** ** | **September 30,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|------------------------|------------|
| ** **                                                                                                                                                                                     | ** ** | **2007**              | ** ** | **2008**               | ** ** |
| **ASSETS**                                                                                                                                                                                     |       |                  |       |                   |       |
| Current Assets:                                                                                                                                                                                |       |                  |       |                   |       |
| Cash and cash equivalents                                                                                                                                                                      |       | $                     | 71,173     |                   | $          | 72,301 |   |
| Restricted cash                                                                                                                                                                                |       | 4,831                 |       | —                 |       |
| Marketable securities                                                                                                                                                                          |       | 5,280                 |       | 5,442                  |       |
| Accounts receivable, net of allowances                                                                                                                                                         |       | 27,357                |       | 28,054                 |       |
| Materials and supplies                                                                                                                                                                         |       | 4,747                 |       | 6,867                  |       |
| Prepayments and other current assets                                                                                                                                                           |       | 4,987                 |       | 4,110                  |       |
| Total current assets                                                                                                                                                                           |       | 118,375               |       | 116,774                |       |
| Fixed Assets:                                                                                                                                                                                  |       |                  |       |                   |       |
| Property, plant, and equipment                                                                                                                                                                 |       | 277,181               |       | 321,685                |       |
| Less accumulated depreciation                                                                                                                                                                  |       | (121,428              | )          | (134,647               | )          |
| Net fixed assets                                                                                                                                                                               |       | 155,753               |       | 187,038                |       |
| Licenses                                                                                                                                                                                       |       | 14,738                |       | 30,734                 |       |
| Goodwill                                                                                                                                                                                       |       | 39,344                |       | 41,801                 |       |
| Other intangibles, net                                                                                                                                                                         |       | 2,349                 |       | 2,706                  |       |
| Investment in and advances to  unconsolidated affiliates                                                                                                                                       |       | 12,453                |       | —                 |       |
| Other assets                                                                                                                                                                                   |       | 1,614                 |       | 7,996                  |       |
| Total assets                                                                                                                                                                                   |       | $                     | 344,626    |                   | $          | 387,049 |   |
| **LIABILITIES, MINORITY INTERESTS AND  STOCKHOLDERS’ EQUITY**                                                                                                                             |       |                  |       |                   |       |
| Current Liabilities:                                                                                                                                                                           |       |                  |       |                   |       |
| Current portion of long-term debt                                                                                                                                                              |       | $                     | —     |                   | $          | 750 |   |
| Accounts payable and accrued liabilities                                                                                                                                                       |       | 25,618                |       | 22,349                 |       |
| Dividends payable                                                                                                                                                                              |       | 2,461                 |       | 2,773                  |       |
| Accrued taxes                                                                                                                                                                                  |       | 11,029                |       | 4,283                  |       |
| Advance payments and deposits                                                                                                                                                                  |       | 3,912                 |       | 3,728                  |       |
| Other current liabilities                                                                                                                                                                      |       | 1,859                 |       | 4,486                  |       |
| Total current liabilities                                                                                                                                                                      |       | 44,879                |       | 38,369                 |       |
| Deferred income taxes                                                                                                                                                                          |       | 13,082                |       | 10,381                 |       |
| Other liabilities                                                                                                                                                                              |       | 458                   |       | 1,484                  |       |
| Long-term debt, excluding current portion                                                                                                                                                      |       | 50,000                |       | 74,062                 |       |
| Total liabilities                                                                                                                                                                              |       | 108,419               |       | 124,296                |       |
| Minority interests                                                                                                                                                                             |       | 27,236                |       | 33,812                 |       |
| Commitments and contingencies (Note 13)                                                                                                                                                        |       |                  |       |                   |       |
| Stockholders’ Equity:                                                                                                                                                                     |       |                  |       |                   |       |
| Preferred stock, $0.01 par value per share;  10,000,000 shares authorized, none issued and outstanding                                                                                         |       | —                |       | —                 |       |
| Common stock, $0.01 par value per share;  50,000,000 shares authorized; 15,675,518 and 15,697,557 shares issued,  respectively, and 15,220,546 and 15,201,110 shares outstanding, respectively |       | 157                   |       | 157                    |       |
| Treasury stock, at cost; 454,972 and  496,447 shares, respectively                                                                                                                             |       | (3,403                | )          | (4,560                 | )          |
| Additional paid-in capital                                                                                                                                                                     |       | 106,038               |       | 107,196                |       |
| Retained earnings                                                                                                                                                                              |       | 108,414               |       | 129,019                |       |
| Accumulated other comprehensive loss                                                                                                                                                           |       | (2,235                | )          | (2,871                 | )          |
| Total stockholders’ equity                                                                                                                                                                |       | 208,971               |       | 228,941                |       |
| Total liabilities, minority interests and  stockholders’ equity                                                                                                                           |       | $                     | 344,626    |                   | $          | 387,049 |   |

 

The accompanyingcondensed notes are an integral part of these condensed consolidatedfinancial statements.

 

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**ATLANTIC TELE-NETWORK, INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS**

**FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2007and 2008**

**(Unaudited)**

**(Dollars in thousands, except per share amounts)**

 
| ** **                                                                                                                                                                                                               | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|------------------------------------------------|------------|
| ** **                                                                                                                                                                                                               | ** ** | **2007**                                             | ** ** | **2008**                                       | ** ** | **2007** | ** ** | **2008** | ** ** |
| **REVENUE:**                                                                                                                                                                                                             | ** ** | ** **                                           | ** ** | ** **                                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| Wireless                                                                                                                                                                                                                 |       | $                                                    | 22,074     |                                           | $          | 30,388 |   | $ | 60,662 |   | $ | 74,927 |   |
| Local telephone and data                                                                                                                                                                                                 |       | 11,642                                               |       | 12,807                                         |       | 34,148 |   | 37,321 |   |
| International long distance                                                                                                                                                                                              |       | 13,335                                               |       | 11,794                                         |       | 39,309 |   | 36,736 |   |
| Other                                                                                                                                                                                                                    |       | 1,043                                                |       | 919                                            |       | 3,053 |   | 2,968 |   |
| Total revenues                                                                                                                                                                                                           |       | 48,094                                               |       | 55,908                                         |       | 137,172 |   | 151,952 |   |
| **OPERATING  EXPENSES**(excluding depreciation and amortization  unless otherwise indicated):                                                                                                                            | ** ** | ** **                                           | ** ** | ** **                                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| Termination and access fees                                                                                                                                                                                              |       | 7,944                                                |       | 9,612                                          |       | 22,200 |   | 25,544 |   |
| Internet and programming                                                                                                                                                                                                 |       | 857                                                  |       | 869                                            |       | 2,524 |   | 2,631 |   |
| Engineering and operations                                                                                                                                                                                               |       | 5,420                                                |       | 6,431                                          |       | 16,893 |   | 18,217 |   |
| Sales and marketing                                                                                                                                                                                                      |       | 3,614                                                |       | 3,123                                          |       | 12,352 |   | 8,741 |   |
| General and administrative                                                                                                                                                                                               |       | 5,804                                                |       | 7,228                                          |       | 17,292 |   | 19,961 |   |
| Depreciation and amortization                                                                                                                                                                                            |       | 6,815                                                |       | 8,289                                          |       | 19,975 |   | 22,790 |   |
| (Gain)/Loss on disposition of long-lived  assets                                                                                                                                                                         |       | 258                                                  |       | —                                         |       | (917 | ) | — |   |
| Total operating expenses                                                                                                                                                                                                 |       | 30,712                                               |       | 35,552                                         |       | 90,319 |   | 97,884 |   |
| Income from operations                                                                                                                                                                                                   |       | 17,382                                               |       | 20,356                                         |       | 46,853 |   | 54,068 |   |
| **OTHER  INCOME (EXPENSE):**                                                                                                                                                                                             | ** ** | ** **                                           | ** ** | ** **                                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| Interest expense                                                                                                                                                                                                         |       | (720                                                 | )          | (733                                           | )          | (1,596 | ) | (2,049 | ) |
| Interest income                                                                                                                                                                                                          |       | 713                                                  |       | 344                                            |       | 1,814 |   | 1,322 |   |
| Other income (expense), net                                                                                                                                                                                              |       | 282                                                  |       | (4                                             | )          | 2,052 |   | 364 |   |
| Other income (expense), net                                                                                                                                                                                              |       | 275                                                  |       | (393                                           | )          | 2,270 |   | (363 | ) |
| **INCOME  BEFORE INCOME TAXES, MINORITY INTERESTS AND EQUITY IN EARNINGS OF  UNCONSOLIDATED AFFILIATES**                                                                                                                 |       | 17,657                                               |       | 19,963                                         |       | 49,123 |   | 53,705 |   |
| Income taxes                                                                                                                                                                                                             |       | 7,863                                                |       | 8,538                                          |       | 21,778 |   | 22,570 |   |
| **INCOME  BEFORE MINORITY INTERESTS AND EQUITY IN EARNINGS OF UNCONSOLIDATED AFFILIATES**                                                                                                                                |       | 9,794                                                |       | 11,425                                         |       | 27,345 |   | 31,135 |   |
| Minority interests, net of tax of $0.9 million and  $0.8 million for the three months ended September 30, 2007 and 2008,  respectively and $2.7 million for the nine months ended September 30,  2007 and 2008 |       | (1,060                                               | )          | (1,286                                         | )          | (3,762 | ) | (3,659 | ) |
| Equity in earnings of unconsolidated  affiliates                                                                                                                                                                         |       | 668                                                  |       | —                                         |       | 1,766 |   | 735 |   |
| **NET  INCOME**                                                                                                                                                                                                          |       | $                                                    | 9,402      |                                           | $          | 10,139 |   | $ | 25,349 |   | $ | 28,211 |   |
| **NET  INCOME PER SHARE:**                                                                                                                                                                                               | ** ** | ** **                                           | ** ** | ** **                                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| Basic                                                                                                                                                                                                                    |       | $                                                    | 0.62       |                                           | $          | 0.67 |   | $ | 1.67 |   | $ | 1.86 |   |
| Diluted                                                                                                                                                                                                                  |       | $                                                    | 0.61       |                                           | $          | 0.66 |   | $ | 1.66 |   | $ | 1.85 |   |
| **WEIGHTED  AVERAGE COMMON SHARES OUTSTANDING:**                                                                                                                                                                         | ** ** | ** **                                           | ** ** | ** **                                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| Basic                                                                                                                                                                                                                    |       | 15,175                                               |       | 15,181                                         |       | 15,162 |   | 15,186 |   |
| Diluted                                                                                                                                                                                                                  |       | 15,317                                               |       | 15,254                                         |       | 15,295 |   | 15,266 |   |
| **DIVIDENDS  PER SHARE APPLICABLE TO COMMON STOCK**                                                                                                                                                                      |       | $                                                    | 0.16       |                                           | $          | 0.18 |   | $ | 0.44 |   | $ | 0.50 |   |

 

The accompanyingcondensed notes are an integral part of these condensed consolidatedfinancial statements.

 

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**ATLANTIC TELE-NETWORK, INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**

**FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2008**

**(Unaudited)**

**(Dollars in thousands)**

 
| ** **                                                                                             | ** ** | **Nine Months Ended  September 30,** | ** ** |
|--------------------------------------------------------------------------------------------------------|------------|------------------------------------------------|------------|
| ** **                                                                                             | ** ** | **2007**                                       | ** ** | **2008** | ** ** |
| **CASH  FLOWS FROM OPERATING ACTIVITIES:**                                                             | ** ** | ** **                                     | ** ** | ** ** | ** ** |
| Net income                                                                                             |       | $                                              | 25,349     |   | $ | 28,211 |   |
| Adjustments to reconcile net income to net  cash flows provided by operating activities:               |       |                                           |       |   |   |
| Depreciation and amortization                                                                          |       | 19,975                                         |       | 22,826 |   |
| Gain on disposition of long-lived assets                                                               |       | (917                                           | )          | — |   |
| Stock-based compensation                                                                               |       | 631                                            |       | 755 |   |
| Deferred income taxes                                                                                  |       | 282                                            |       | 400 |   |
| Minority interests                                                                                     |       | 3,762                                          |       | 3,659 |   |
| Equity in earnings of unconsolidated  affiliates                                                       |       | (1,766                                         | )          | (735 | ) |
| Dividends received from Bermuda Digital  Communications, Ltd.                                          |       | 1,451                                          |       | 1,106 |   |
| Changes in operating assets and  liabilities, excluding the effects of acquisitions:                   |       |                                           |       |   |   |
| Accounts receivable, net                                                                               |       | (4,792                                         | )          | 1,858 |   |
| Materials and supplies, prepayments, and  other current assets                                         |       | 1,022                                          |       | 1,473 |   |
| Other assets                                                                                           |       | (1,029                                         | )          | (6,847 | ) |
| Accounts payable and accrued liabilities,  advance payments and deposits and other current liabilities |       | (1,371                                         | )          | (3,627 | ) |
| Accrued taxes                                                                                          |       | 2,073                                          |       | (9,457 | ) |
| Net cash provided by operating activities                                                              |       | 44,670                                         |       | 39,622 |   |
| **CASH  FLOWS FROM INVESTING ACTIVITIES:**                                                             | ** ** | ** **                                     | ** ** | ** ** | ** ** |
| Capital expenditures                                                                                   |       | (31,212                                        | )          | (34,611 | ) |
| Acquisitions of businesses, net of cash  acquired of $1,687 and $5,736, respectively                   |       | (6,721                                         | )          | (23,052 | ) |
| Decrease in restricted cash                                                                            |       | —                                         |       | 4,831 |   |
| Purchase of short-term marketable  securities                                                          |       | —                                         |       | (162 | ) |
| Net proceeds from sale of fixed assets                                                                 |       | 2,305                                          |       | — |   |
| Net cash used in investing activities                                                                  |       | (35,628                                        | )          | (52,994 | ) |
| **CASH  FLOWS FROM FINANCING ACTIVITIES:**                                                             | ** ** | ** **                                     | ** ** | ** ** | ** ** |
| Borrowings of long-term debt                                                                           |       | —                                         |       | 75,000 |   |
| Repayments of long-term debt                                                                           |       | —                                         |       | (50,188 | ) |
| Dividends paid on common stock                                                                         |       | (6,379                                         | )          | (7,293 | ) |
| Distributions to minority shareholders                                                                 |       | (2,396                                         | )          | (2,159 | ) |
| Proceeds from stock option exercises                                                                   |       | 157                                            |       | 304 |   |
| Purchase of common stock                                                                               |       | —                                         |       | (1,164 | ) |
| Net cash used in financing activities                                                                  |       | (8,618                                         | )          | 14,500 |   |
| **NET  CHANGE IN CASH AND CASH EQUIVALENTS**                                                           |       | 424                                            |       | 1,128 |   |
| **CASH AND  CASH EQUIVALENTS, beginning of the period**                                                |       | 60,543                                         |       | 71,173 |   |
| **CASH AND  CASH EQUIVALENTS, end of the period**                                                      |       | $                                              | 60,967     |   | $ | 72,301 |   |

 

The accompanyingcondensed notes are an integral part of these condensed consolidatedfinancial statements.

 

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**ATLANTICTELE-NETWORK, INC. AND SUBSIDIARIES**

**NOTES TO UNAUDITED CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS**

 

**1.  ORGANIZATION AND BUSINESS OPERATIONS**

 

AtlanticTele-Network, Inc. (“ATN” or “Company”) provides wireless and wirelinetelecommunication services in the Caribbean and North America through thefollowing principal operating subsidiaries:

 

·                    Guyana Telephone &Telegraph Company, Ltd. (“GT&T”), the national and internationaltelephone company in the Republic of Guyana and the largest wireless serviceprovider in that country. The Company has owned 80% of the stock of GT&Tsince January 1991.

 

·                     Commnet Wireless, LLC (“Commnet”),an owner and operator of wholesale wireless networks in rural areas of theUnited States. Commnet provides wireless voice and data communications roamingservices primarily to national, regional and local wireless carriers. Weacquired 95% of the equity of Commnet in September 2005 and the remaining5% in January 2007.

 

·                    Bermuda DigitalCommunications, Ltd. (“BDC”), the largest wireless voice and datacommunications service provider in Bermuda, doing business under the name “CellularOne”. The Company acquired an equity interest in, and signed a managementcontract with, BDC in 1998.  On May 15,2008, BDC completed a share repurchase of its common stock.  ATN did not tender any shares for repurchase,and, as a result of the transaction, increased its holdings from approximately43% to approximately 58% of BDC’s outstanding common stock.  Prior to this increase in holdings, theCompany accounted for its investment in BDC under the equity method andearnings from BDC did not appear in its income from operations, but were insteadreflected in equity in earnings of unconsolidated affiliates.  Effective with the completion of that sharerepurchase, the Company began consolidating BDC’s balance sheet and results ofoperations. BDC also provides wireless services in Turks & Caicos through an investment made in the third quarter2008.

 

·                    Sovernet, Inc. (“Sovernet”), afacilities-based integrated voice, broadband data communications and dial-upservice provider in New England and New York State. Sovernet’s retailtelecommunications services is delivered to business and residential customersin Vermont and New Hampshire.  Through aninvestment made in 2008, Sovernet also delivers wholesale transport services inNew York State through ION. The Company has owned 96% of Sovernet since itsacquisition in February 2006.

 

·                    Choice Communications, LLC (“Choice”),is a leading provider of fixed wireless broadband data, wireless digitaltelevision services and dial-up internet services to retail and businesscustomers in the U.S. Virgin Islands. Choice is a wholly owned subsidiary ofthe Company.

 

ATNprovides management, technical, financial, regulatory and marketing servicesfor its subsidiaries and typically receives a management fee equal toapproximately 3% to 6% of their respective revenues. Management fees fromconsolidated subsidiaries are eliminated in consolidation. Management fees frompreviously unconsolidated affiliates are included in “Other Income” in theaccompanying statements of operations.

 

**2.  BASIS OF PRESENTATION**

 

Theaccompanying condensed consolidated financial statements have been prepared bythe Company pursuant to the rules and regulations of the Securities andExchange Commission (“SEC”). The financial information included herein isunaudited; however, the Company believes such information and the disclosuresherein are adequate to make the information presented not misleading andreflect all adjustments (consisting only of normal recurring adjustments) thatare necessary for a fair statement of the Company’s financial position and resultsof operations for such periods. The year-end condensed balance sheet data wasderived from audited financial statements, but does not include all disclosuresrequired by accounting principles generally accepted in the United States ofAmerica.  Results of interim periodsmay not be indicative of results for the full year.  These condensed consolidated financialstatements and related notes should be read in conjunction with the Company’s2007 Annual Report on Form 10-K.

 

*Consolidation*

 

Theconsolidated financial statements include the accounts of the Company, itsmajority-owned subsidiaries and Commnet of Florida, LLC, which is consolidatedin accordance with the provisions of Financial Accounting Standards Board (“FASB”)Interpretation No. 46, *Consolidation of VariableInterest Entities, an interpretation on Accounting Research Bulletin No. 51*as revised in December 2003 since it was determined that the Company isthe primary beneficiary of Commnet of Florida, LLC.

 

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Exceptfor the Company’s investment in Commnet of Florida, LLC, the equity method ofaccounting is used for the Company’s investments in affiliated entities inwhich the Company has at least a 20% ownership but does not have managementcontrol. The Company accounts for investments of less than 20% for which theCompany does not have the ability to exert significant influence over theoperations by using the cost method of accounting.

 

*Recent Accounting Pronouncements*

 

In September 2008,the FASB issued FASB Staff Position (FSP) No. EITF 03-6-1, *Determining Whether Instruments Granted in Share-Based PaymentTransactions Are Participating Securities* (“FSP No. EITF03-6-1”). Under the provisions of this standard, unvested awards of share-basedpayments with non-forfeitable rights to receive dividends or dividendequivalents are considered participating securities for purposes of calculatingearnings per share. FSP No. EITF 03-6-1 is effective for financialstatements issued for fiscal years and interim periods beginning after December 15,2008. As our unvested awards of share-based payments’ rights to receivedividends or dividend equivalents are forfeitable, the adoption of FSP No. EITF03-6-1 will not have an impact on our consolidated financial statements.

 

InApril 2008, the FASB issued FSP No. 142-3, *Determination of the Useful Life of Intangible Assets*(“FSP 142-3”), which amends thefactors that must be considered in developing renewal or extension assumptionsused to determine the useful life over which to amortize the cost of arecognized intangible asset under SFAS 142. FSP 142-3 amends paragraph 11(d) ofSFAS 142 to require an entity to consider its own assumptions about renewal orextension of the term of the arrangement, consistent with its expected use ofthe asset. The FSP also requires the incremental disclosures for renewableintangible assets

 

FSP 142-3 is effectivefor financial statements for fiscal years beginning after December 15,2008. The guidance for determining the useful life of a recognized intangibleasset must be applied prospectively to intangible assets acquired after theeffective date. Early adoption is prohibited. Accordingly, FSP 142-3 would notserve as a basis to change the useful life of an intangible asset that wasacquired prior to the effective date (January 1, 2009 for ATN). However,the incremental disclosure requirements described above would apply to allintangible assets, including those recognized in periods prior to the effectivedate of FSP 142-3. We are currently evaluating the impact that the adoption ofFSP 142-3 will have on our consolidated financial statements.

 

In March 2008, theFASB issued SFAS No. 161, *Disclosures aboutDerivative Instruments and Hedging Activities - an amendment of FASB Statement No. 133*(“SFAS 161”).  SFAS 161 amends and expands the disclosurerequirements of Statement 133 to provide a better understanding of how and whyan entity uses derivative instruments, how derivative instruments and relatedhedged items are accounted for, and their effect on an entity’s financialposition, financial performance, and cash flows.  SFAS 161 iseffective for fiscal years beginning after November 15, 2008.  We do not expect that the adoption of SFAS161 will have a material impact on our consolidated financial statements.

 

Effective January 1, 2008, we implemented Statement of FinancialAccounting Standard No. 157, *Fair ValueMeasurement* (“SFAS 157”), for our financial assets andliabilities that are re-measured and reported at fair value at each reportingperiod, and non-financial assets and liabilities that are re-measured andreported at fair value at least annually. In accordance with the provisions ofFASB staff position No. FAS 157-2, *EffectiveDate of FASB Statement No. 157,*we have elected to deferimplementation of SFAS 157 as it relates to all of our non-financialassets and non-financial liabilities that are recognized and disclosed at fairvalue in the financial statements on a nonrecurring basis until January 1,2009. We are evaluating the impact, if any, this standard will have on ournon-financial assets and liabilities. The adoption of SFAS 157 to ourfinancial assets and liabilities and non-financial assets and liabilities thatare re-measured and reported at fair value at least annually did not have amaterial impact on our consolidated financial results.

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Effective January 1,2008, we adopted SFAS No. 159, *The Fair Value Option forFinancial Assets and Financial Liabilities* (“SFAS 159”). SFAS 159permits entities to choose to measure certain financial instruments and othereligible items at fair value when the items are not otherwise currentlyrequired to be measured at fair value. Upon adoption, we did not elect the fairvalue option for any new items within the scope of SFAS 159 and, therefore, theadoption of SFAS 159 did not have an impact on our consolidated financialstatements.

 

In December 2007,the FASB issued SFAS No. 141 (revised 2007), *BusinessCombinations* (“SFAS 141R”). SFAS 141R addresses the recognition andaccounting for identifiable assets acquired, liabilities assumed, andnoncontrolling interests in business combinations. SFAS 141R also establishesexpanded disclosure requirements for business combinations. SFAS 141R iseffective for us on January 1, 2009, and we will apply SFAS 141Rprospectively to all business combinations subsequent to the effectivedate.  We are currently evaluating theimpact that the adoption of SFAS 141R will have on our consolidated financialstatements.

 

In December 2007,the FASB issued SFAS No. 160, *Noncontrolling Interestsin Consolidated Financial Statements - an amendment of ARB No. 51*(“SFAS 160”). SFAS 160 establishes accounting and reporting standards for thenoncontrolling interest in a subsidiary and for the deconsolidation of asubsidiary.  SFAS 160 requires that noncontrolling interests insubsidiaries be reported in the equity section of the controlling company’sbalance sheet. It also changes the manner in which the net income of thesubsidiary is reported and disclosed in the controlling company’s incomestatement. SFAS 160 is effective for fiscal years beginning after December 15,2008. We are currently evaluating the impact that the adoption of SFAS 160 willhave on our consolidated financial statements.

 

*Reclassifications*

 

Certainreclassifications have been made to the 2007 statement of operations to conformto the 2008 presentation.  For the threemonths ended September 30, 2007, such reclassifications consisted of anincrease to 2007 wireless revenue of $0.6 million; a decrease to 2007 localtelephone and data revenue of $0.2 million; an increase to 2007 internationallong distance revenue of $0.7 million and an increase to 2007 termination andaccess fees expense of $1.1 million.  Forthe nine months ended September 30, 2007, such reclassifications consistedof an increase to 2007 wireless revenue of $1.9 million; a decrease to 2007local telephone and data revenue of $0.9 million; an increase to 2007international long distance revenue of $1.4 million and an increase to 2007termination and access fees expense of $2.5 million.

 

**3.  USE OF ESTIMATES**

 

The preparation offinancial statements in conformity with accounting principles generallyaccepted in the United States of America requires management to make estimatesand assumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the dates of the financialstatements and the reported amounts of revenues and expenses during thereporting periods. The most significant estimates relate to revenuerecognition, allowance for doubtful accounts, useful lives of the Company’sfixed and finite-lived intangible assets, allocation of purchase price toassets acquired and liabilities assumed in purchase business combinations, fairvalue of indefinite-live intangible assets, goodwill and income taxes. Actualresults could differ significantly from those estimates.

 

**4.  ACQUISITIONS**

 

During 2008, the Companycompleted the acquisitions of ION, and Islandcom Telecommunications andincreased its ownership interest in BDC (collectively, the “2008 Acquisitions”).

 

*Bermuda Digital Communications*

* *

On May 15, 2008, theCompany’s equity interest in BDC increased from 43% to 58% as a result of BDC’srepurchase of $17.0 million of shares from other shareholders.  Prior tothis increase in equity interest, the Company accounted for its investment inBDC under the equity method and earnings from BDC did not appear in its incomefrom operations, but were instead reflected in equity in earnings of unconsolidatedaffiliates.  The Company began consolidating BDC’s balance sheet andresults of operations from May 16, 2008, the date that we obtained controlof BDC.

 

The transaction wasaccounted for using the purchase method and the $17.0 million of cash consideration,was allocated to the Company’s increased share of the assets acquired andliabilities assumed at their estimated fair values as of May 15, 2008.  The income approach was used to value each ofthese identifiable intangible assets which is an approach based upon theeconomic principle of anticipation in that the value of any property is thepresent value of the expected income that can be generated through ownership ofthat property.  Included in theallocation of the purchase price was $9.4 million of licenses, $0.9 millionattributable to BDC’s relationships with its existing customers as of the dateof acquisition and $6.0 million allocable to other acquired assets andliabilities at fair value. The excess of the purchase price over the amountsallocated to assets acquired and liabilities assumed of $2.4 million has beenrecorded as

 

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goodwill. The value of the goodwill from thisacquisition can be attributed to a number of business factors including, butnot limited to, the reputation of BDC as a retail provider of wireless servicesas well as a network operator, BDC’s reputation for customer care, the skillsand experience of its management and staff associated with the 2008Acquisitions and the strategic position it holds in its marketplace.  Thecustomer relationships will be amortized, on an accelerated basis, over theexpected period during which their economic benefits are to be realized, whichis expected to be ten years. For tax purposes, the goodwill and amortization ofthe customer relationships will not be deductible.

 

*ION, LLC*

* *

On August 15, 2008, theCompany, through its Sovernet subsidiary, completed its acquisition of 75% ofthe equity of ION, LLC (“ION”), an upstate New York provider of high capacitycommunications network transport services. The acquisition of ION continues the Company’s strategy of providinghigh quality network services to underserved rural markets. Beginning with theacquisition date of August 15, 2008, the Company began consolidating ION’s balancesheet and the operating results of ION into its results of operations.

 

The transaction wasaccounted for using the purchase method and the $5.6 million of cash considerationwas allocated to the Company’s share of the assets acquired and liabilitiesassumed at their estimated fair values as of the acquisition date**.**The Company is in the process ofcompleting a valuation of certain acquired tangible and intangible assets;thus, the allocation of the purchase price is preliminary as of September 30,2008. Based upon the preliminary allocation, no goodwill or intangible assetshave been recorded in connection with this transaction.

 

The results ofION are included in the Company’s “Integrated Telephony-Domestic” segment asreported in Note 11.

 

*Islandcom Telecommunications*

* *

On September 1, 2008,the Company, through its BDC subsidiary, completed its acquisition of 42% ofthe equity of Islandcom Telecommunications (“Islandcom”), a provider ofwireless telecommunication services in Turks & Caicos.  If current laws, which restrict foreignownership of companies operating in Turks & Caicos, are changed, BDCwill be able to increase its ownership in Islandcom from 42% to 76% through theexercise of a warrant received as a part of the acquisition.  The value of the warrant was determined basedupon the estimated value of Islandcom’s shares and the likelihood that thecurrent laws are changed.  The Company,through its majority representation on Islandcom’s board of directors exercisescontrol and as a result, the Company has consolidated the balance sheet andoperating results of Islandcom since the date of acquisition.

 

Thetransaction was accounted for using the purchase method and the $5.4 million ofconsideration was allocated to the Company’s share of the assets acquired andliabilities assumed at their estimated fair values as of the acquisitionsdate.  The preliminary allocation of thepurchase price, as determined by management, included $6.4 million oftelecommunications licenses.

 

Islandcom,which further expands the Company’s wireless networks into under-served markets,is included in the Company’s “Island Wireless” segment as reported in Note 11.

 

In accordance with current accounting standards, the goodwill andlicenses will not be amortized and will be tested for impairment at leastannually as required by SFAS No. 142, “Goodwill and Other IntangibleAssets”.

 

Thefollowing table reflects unaudited pro forma results of operations of theCompany for the three and nine months ended September 30, 2007 and 2008assuming that the 2008 Acquisitions had occurred at the beginning of eachperiod presented (in thousands, except per share data):

 
| ** **          | ** ** | **Three Months Ended September 30,** | ** ** |
|---------------------|------------|----------------------------------------------------------|------------|
| ** **          | ** ** | **2007**                                                 | ** ** | **2008** | ** ** |
| ** **          | ** ** | **As Reported**                                     | ** ** | **As Adjusted** | ** ** | **As Reported** | ** ** | **As Adjusted** | ** ** |
| Revenue             |       | $                                                        | 48,094     |   | $ | 55,285 |   | $ | 55,908 |   | $ | 56,281 |   |
| Net Income          |       | $                                                        | 8,048      |   | $ | 8,717 |   | $ | 10,139 |   | $ | 9,537 |   |
| Earnings per Share: |       |                                                     |       |   |   |   |   |   |   |
| Basic               |       | $                                                        | 0.53       |   | $ | 0.57 |   | $ | 0.67 |   | $ | 0.63 |   |
| Diluted             |       | $                                                        | 0.53       |   | $ | 0.57 |   | $ | 0.66 |   | $ | 0.63 |   |

 
| ** **          | ** ** | **Nine Months Ended September 30,** | ** ** |
|---------------------|------------|---------------------------------------------------------|------------|
| ** **          | ** ** | **2007**                                                | ** ** | **2008** | ** ** |
| ** **          | ** ** | **As Reported**                                    | ** ** | **As Adjusted** | ** ** | **As Reported** | ** ** | **As Adjusted** | ** ** |
| Revenue             |       | $                                                       | 137,172    |   | $ | 156,766 |   | $ | 151,952 |   | $ | 162,044 |   |
| Net Income          |       | $                                                       | 25,349     |   | $ | 21,652 |   | $ | 28,211 |   | $ | 25,733 |   |
| Earnings per Share: |       |                                                    |       |   |   |   |   |   |   |
| Basic               |       | $                                                       | 1.67       |   | $ | 1.43 |   | $ | 1.86 |   | $ | 1.69 |   |
| Diluted             |       | $                                                       | 1.66       |   | $ | 1.42 |   | $ | 1.85 |   | $ | 1.69 |   |

 

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**5.  FAIR VALUE MEASUREMENTS**

 

The following tables present information (in thousands) about ourassets and liabilities that are measured at fair value on a recurring basis asof September 30, 2008, and indicates the fair value hierarchy of thevaluation techniques we utilized to determine such fair value. In general, fairvalues determined by Level 1 inputs utilize quoted prices (unadjusted) inactive markets for identical assets or liabilities. Fair values determined byLevel 2 inputs utilize data points that are observable such as quotedprices, interest rates and yield curves. Fair values determined by Level 3inputs are unobservable data points for the asset or liability, and includessituations where there is little, if any, market activity for the asset orliability.  As of September 30, 2008, theCompany did not have any level 3 assets or liabilities.

 
| **Description**                              | ** ** | **Quoted Prices in  Active Markets  (Level 1)** | ** ** | **Significant Other  Observable Inputs  (Level 2)** | ** ** | **Total** | ** ** |
|----------------------------------------------|------------|---------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|-----------|------------|
| Commercial paper                             |       | $                                                                   | —     |                                                               | $          | —    |       | $ | — |   |
| Certificates of deposit                      |       | —                                                              |       | 5,442                                                              |       | 5,442     |       |
| Money market funds                           |       | 13,625                                                              |       | —                                                             |       | 13,625    |       |
| **Total assets measured at fair value**      |       | $                                                                   | 13,625     |                                                               | $          | 5,442     |       | $ | 19,067 |   |
|                                         |       |                                                                |       |                                                               |       |      |       |
| Interest rate swap (Note 8)                  |       | $                                                                   | —     |                                                               | $          | 1,026     |       | $ | 1,026 |   |
| **Total liabilities measured at fair value** |       | $                                                                   | —     |                                                               | $          | 1,026     |       | $ | 1,026 |   |

 

The fair value of theinterest rate swap was determined using a pricing model predicated uponobservable market inputs.  See Note 8.

** **

**6.  DEPOSIT FOR ACQUISITION OF SPECTRUM**

 

*Duringthe first quarter of 2008, we were awarded the right to acquire, for $3.0million, certain spectrum in connection with our participation in the FCC’sauction (FCC Auction No. 73) of 700 MHz spectrum being re-claimed by theFCC from the broadcast industry and sold by the FCC to wireless operators.  This amount is included in Other Assets inour Consolidated Balance Sheet as of September 30, 2008; it will bereclassified to Licenses, and considered a capital expenditure, upon the finalizationof such award, expected to occur during the first quarter of 2009.*

* *

**7.  CREDIT FACILITIES**

 

Long-term debt comprises the following (in thousands):

 
| ** **                                | ** ** | **December 31,  2007** | ** ** | **September 30,  2008** | ** ** |
|-------------------------------------------|------------|-----------------------------|------------|------------------------------|------------|
| Note payable — $50 million term loan |       | $                           | 50,000     |                         | $          | — |   |
| Note Payable — $75 million term loan |       | —                      |       | 74,812                       |       |
|                                      |       | 50,000                      |       | 74,812                       |       |
| Less: Current Portion                     |       | —                      |       | 750                          |       |
| Total Long Term Debt                      |       | $                           | 50,000     |                         | $          | 74,062 |   |

 

*2005 Loan Facility*

* *

On August 31,2007, the Company, as borrower, amended and restated its credit agreement withCoBank, ACB and Banco Popular de Puerto Rico (the “2005 CoBank Credit Agreement”).The 2005 CoBank Credit Agreement provided a $50 million term loan (the “2005Term Loan”) and a $20 million revolving credit facility (the “2005 RevolverFacility”, together with the 2005 Term Loan, the “2005 Credit Facility”). The2005 Credit Facility was guaranteed by our Commnet and Sovernet subsidiariesand was collateralized by, among other things, a security interest insubstantially all of the assets of and stock owned by ATN, Commnet andSovernet. The 2005 Term Loan had principal repayments deferred until thematurity of the loan on October 31, 2010. Interest on the 2005 Term Loanwas payable on a quarterly basis at a fixed annual interest rate of 5.85%, netof any patronage payments received by the Company from the bank. Amountsoutstanding under the 2005 Revolver Facility (none as of September 30,2008) accrued interest at a rate equal to (at the Company’s option): (i) LIBORplus a margin ranging from 1.25% to 1.50% or (ii) a variable rate ofinterest as defined within the 2005 Revolver Facility plus 1%.

 

The2005 CoBank Credit Agreement contained certain affirmative and negativecovenants of ATN and its subsidiaries (including Commnet) that were typical forloan facilities of this type. Among other things, these covenants restrictedATN’s ability to

 

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incur additional debt in the future or to incur lienson its property. ATN also agreed to maintain certain financial ratios under thefacilities, including a total leverage ratio (debt to EBITDA) of two to one orless; a debt service coverage ratio (EBITDA to debt service) of three to one ormore; an equity to assets ratio of 0.4 to one or more; and a specified leverageratio for Commnet of 5.00 to one or less.

 

*2008 LoanFacility*

* *

On September 10,2008, the Company, as borrower, entered into a credit agreement with CoBank,ACB and other lenders as referenced within the credit agreement (the “2008CoBank Credit Agreement”).  The 2008CoBank Credit Agreement replaced the 2005 Credit Agreement and provides a $75million term loan (the “2008 Term Loan”) as well as a $75 million revolvingcredit facility (the “2008 Revolver Facility”, together with the 2008 TermLoan, the “2008 Credit Facility”).

 

The 2008 TermLoan matures on September 10, 2015 and requires quarterly repayments ofprincipal of $0.2 million through June 30, 2013 and quarterly repaymentsof principal of $1.4 million from September 30, 2013 to June 30,2015.  The remaining outstandingprincipal balance is to be repaid on September 10, 2015 when the 2008 TermLoan matures.  The 2008 Revolver Facilitymatures on September 10, 2014 and includes a $5 million letter of creditfacility.  At September 30, 2008, noamounts have been drawn under the 2008 Revolver Facility.

 

All borrowingsunder the 2008 Credit Facility bear interest at a rate, selected by the Companyfrom one of the options as defined within the agreement, plus a margin. Suchinterest rate options include i) a base rate, defined as the greater of theprime rate or the federal funds rate plus 0.5%, or ii) a LIBOR rate.  Margins for base rate borrowings range from0% to 0.5%, depending upon the Company’s leverage ratio while margins for LIBORborrowings range from 1.25% to 2% also depending upon the Company’s leverageratio.  Borrowings as of September 30,2008, including the interest rate swap agreement in Note 8, were bearing aweighted average interest rate of 5.50%.

 

The 2008Credit Facility is guaranteed by the Company’s Commnet, Sovernet and choicesubsidiaries, along with certain of the Company’s other domestic subsidiaries, andis collateralized by a security interest in substantially all of the assets of theCompany and the guarantor subsidiaries, including Commnet, Sovernet and choice,and a pledge of the stock of certain of the Company’s direct and indirect,domestic and foreign, subsidiaries, including its principal operatingsubsidiaries, and stock owned by the Company.

 

The 2008Credit Agreement contains certain affirmative and negative covenants of theCompany and its subsidiaries.  Amongother things, these covenants restrict the Company’s ability to incuradditional debt in the future or to incur liens on its property.  The 2008 Credit Agreement also requires theCompany to maintain certain financial ratios including a net leverage ratio ofless than or equal to 3.0 to 1, an interest coverage ratio of greater than orequal to 3.5 to 1 and an equity to assets ratio of greater than or equal to 0.4to 1.  As of September 30, 2008, theCompany was in compliance with all of the covenants of the 2008 CoBank CreditAgreement.

 

See Note 8 for a discussionregarding the Company’s interest rate swap that corresponds to a portion of ourvariable rate debt in order to effectively hedge interest rate risk.

 

**8.  DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES**

 

On September 23,2008, the Company entered into a forward starting interest rate swap agreementto add stability to interest expense and to manage its exposure to adversechanges in interest rates. The interest rate swap agreement has an initialnotional amount of $68 million, receives 1 month LIBOR, and pays a fixed rateof 4.42%.  The interest rate swapagreement effectively converts the variable interest payments on the first $68million of the 2008 Term Loan to a fixed rate of 4.42% plus any credit spread,if applicable, over the life of the agreement. The interest rate swap agreement has an effective date of October 15,2008, and a maturity date of September 15, 2015.

 

Statement of FinancialAccounting Standards No. 133, *Accountingfor Derivative Instruments and Hedging**Activities* (SFAS 133), as amended and interpreted,establishes accounting and reporting standards for derivative instruments,including hedging activities.  Asrequired by SFAS 133, the Company records its interest rate swap derivative onthe balance sheet at fair value.  The accounting for changes in the fairvalue depends on the intended use of the derivative and the resultingdesignation. Derivatives used to hedge the exposure to variability in expectedfuture cash flows, such as our interest rate swap, or other types of forecastedtransactions, are considered cash flow hedges.

 

For derivativesdesignated as cash flow hedges, the effective portion of changes in the fairvalue of the derivative is initially reported in other comprehensive income(outside of earnings) and subsequently reclassified to earnings when the hedgedtransaction affects earnings, and the ineffective portion of changes in thefair value of the derivative is recognized directly in earnings. The Companyassesses the effectiveness of the hedging relationship by comparing the changesin fair value or cash flows of the derivative hedging instrument with thechanges in fair value or cash flows of the designated hedged item ortransaction.

 

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At September 30,2008 the Company’s interest rate swap agreement, which qualifies as aneffective cash flow hedge under SFAS 133, had a fair value of ($1,026,000)which was included in other liabilities. The change in net unrealized losses on the cash flow hedge reported inthe consolidated statements of changes in shareholders’ equity is $1,026,000,net of income tax benefit of $390,000. Amounts reported in accumulated other comprehensive income related tothe interest rate swap agreement will be reclassified to interest income asinterest payments are received on the Company’s variable-rate loan assets.

 

TheCompany does not use derivatives for trading or speculative purposes.

 

**9.  STOCK-BASED COMPENSATION**

 

In May 2008, at the Company’s Annual Meeting of Stockholders, theCompany’s stockholders approved the 2008 Equity Incentive Plan (the “2008 Plan”).  The 2008 Plan replaced the 1998 Stock OptionPlan, the 2005 Restricted Stock Plan and the Director’s Remuneration Plan(collectively and including the 2008 Plan the “Share Based Plans”), under whichno further awards will be made.  The 2008Plan allows for the grant of stock options, restricted stock, restricted stockunits, stock equivalents and awards of shares of common stock that are notsubject to restrictions or forfeiture.

 

Duringthe three months ended September 30, 2007 and 2008, the Company recognized$213,000 and $205,000, respectively, of non-cash compensation expense relatingto grants under its Share Based Plans. During the nine months ended September 30, 2007 and 2008, theCompany recognized $631,000 and $755,000, respectively, of non-cashcompensation expense relating to grants under its Share Based Plans.

 

**10.  NET INCOME PERSHARE**

 

For the three and nine months ended September 30,2007 and 2008, stock options and restricted stock issued under the share basedplans were the only potentially dilutive securities.

 

The reconciliation from basic to diluted weightedaverage common shares outstanding is as follows (in thousands):

 
| ** **                                          | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|-----------------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                          | ** ** | **2007**                                             | ** ** | **2008**                                            | ** ** | **2007** | ** ** | **2008** | ** ** |
| Basic weighted average common shares  outstanding   |       | 15,175                                               |       | 15,181                                              |       | 15,162 |   | 15,186 |   |
| Unvested shares                                     |       | 37                                                   |       | 9                                                   |       | 43 |   | 15 |   |
| Stock options                                       |       | 105                                                  |       | 64                                                  |       | 90 |   | 65 |   |
| Diluted weighted average common shares  outstanding |       | 15,317                                               |       | 15,254                                              |       | 15,295 |   | 15,266 |   |

 

Thefollowing notes the number of common shares not included in the abovecalculation because the effects of such were anti-dilutive:

 
| ** **    | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|---------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **    | ** ** | **2007**                                             | ** ** | **2008**                                            | ** ** | **2007** | ** ** | **2008** | ** ** |
| Stock options |       | 69                                                   |       | 229                                                 |       | 73 |   | 221 |   |

 

**11.  SEGMENT REPORTING**

 

The Company has five reportable segments which areconsidered material for separate disclosure under Statement of FinancialAccounting Standards No. 131, *DisclosuresAbout Segments of an Enterprise and Related Information.* Those fivesegments are: i) Integrated Telephony-International, which generates allof its revenues in Guyana and has all of its assets located in Guyana (“GT&T”),ii) Rural Wireless, which generates all of its revenues in the UnitedStates and has all of its assets located in the United States (“Commnet”), iii)Island Wireless, iv) Integrated Telephony-Domestic, which generates all ofits revenues and has all of its assets located in the United States (“Sovernet”)and v) Wireless Television and Data, which generates all of its revenuesin and has all of its assets located in the U.S Virgin Islands (“Choice”).  Island Wireless became a reportable segmentupon completion of BDC’s share repurchase and resulting increase in the Company’sequity interest in BDC, effective May 15, 2008.  The Island Wireless segment generates itsrevenues in and has its assets in Bermuda (“Bermuda Digital Communications”)and Turks and Caicos (“Islandcom”). The operating segments are managedseparately because each offers different services and serves different markets.

 

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Certain elements of the 2007 segment information havebeen revised to conform to the current format of financial information reviewedby the Company’s chief operating decision makers.

 

The following tables provide information for eachoperating segment (in thousands):

 
| ** **                                                   | ** ** | **For the Three Months Ended September 30, 2007** | ** ** |
|--------------------------------------------------------------|------------|--------------------------------------------------------------------------------------|------------|
| ** **                                                   | ** ** | **Integrated  Telephony-  International**                                            | ** ** | **Rural  Wireless** | ** ** | **Island  Wireless** | ** ** | **Integrated  Telephony-  Domestic** | ** ** | **Wireless  Television  and Data** | ** ** | **Corporate** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| Revenues                                                     |       | $                                                                                    | 26,234     |   | $ | 15,962 |   | $ | — |   | $ | 3,661 |   | $ | 2,237 |   | $ | 2,720 |   | $ | (2,720 | ) | $ | 48,094 |   |
| Depreciation  and amortization                               |       | 3,905                                                                                |       | 1,879 |   | — |   | 431 |   | 522 |   | 78 |   | — |   | 6,815 |   |
| Non-cash  stock-based compensation                           |       | —                                                                               |       | — |   | — |   | 32 |   | — |   | 181 |   | — |   | 213 |   |
| Loss  on disposition of long-lived assets                    |       | —                                                                               |       | — |   | — |   | — |   | — |   | 258 |   | — |   | 258 |   |
| Operating  income (loss)                                     |       | 11,479                                                                               |       | 7,938 |   | — |   | 508 |   | (404 | ) | 581 |   | (2,720 | ) | 17,382 |   |
| Interest  expense                                            |       | —                                                                               |       | (195 | ) | — |   | — |   | (880 | ) | (694 | ) | 1,049 |   | (720 | ) |
| Interest  income                                             |       | 168                                                                                  |       | 81 |   | — |   | 90 |   | — |   | 1,423 |   | (1,049 | ) | 713 |   |
| Income  taxes                                                |       | 4,768                                                                                |       | 2,874 |   | — |   | 157 |   | (142 | ) | 206 |   | — |   | 7,863 |   |
| Equity  in earnings of unconsolidated affiliates, net of tax |       | —                                                                               |       | — |   | — |   | — |   | — |   | 8,133 |   | (7,465 | ) | 668 |   |
| Net  income (loss)                                           |       | $                                                                                    | 4,394      |   | $ | 4,253 |   | $ | — |   | $ | 283 |   | $ | (1,282 | ) | $ | 9,219 |   | (7,465 | ) | $ | 9,402 |   |
|                                                              |            |                                                                                      |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                                                   | ** ** | **For the Three Months Ended September 30, 2008** | ** ** |
|--------------------------------------------------------------|------------|--------------------------------------------------------------------------------------|------------|
| ** **                                                   | ** ** | **Integrated  Telephony-  International**                                            | ** ** | **Rural  Wireless** | ** ** | **Island  Wireless** | ** ** | **Integrated  Telephony-  Domestic** | ** ** | **Wireless  Television  and Data** | ** ** | **Corporate** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| Revenues                                                     |       | $                                                                                    | 24,725     |   | $ | 19,877 |   | $ | 5,109 |   | $ | 4,148 |   | $ | 2,049 |   | $ | 2,663 |   | $ | (2,663 | ) | $ | 55,908 |   |
| Depreciation  and amortization                               |       | 4,212                                                                                |       | 2,504 |   | 705 |   | 516 |   | 278 |   | 74 |   | — |   | 8,289 |   |
| Non-cash  stock-based compensation                           |       | —                                                                               |       | — |   | — |   | 32 |   | — |   | 174 |   | — |   | 206 |   |
| Gain  on disposition of long-lived asset                     |       | —                                                                               |       | — |   | — |   | — |   | — |   | — |   | — |   | — |   |
| Operating  income (loss)                                     |       | 10,411                                                                               |       | 10,846 |   | 1,228 |   | 147 |   | (601 | ) | 988 |   | (2,663 | ) | 20,356 |   |
| Interest  expense                                            |       | —                                                                               |       | — |   | (218 | ) | (22 | ) | (879 | ) | (733 | ) | 1,119 |   | (733 | ) |
| Interest  income                                             |       | 178                                                                                  |       | 62 |   | 11 |   | 41 |   | — |   | 1,171 |   | (1,119 | ) | 344 |   |
| Income  taxes                                                |       | 4,406                                                                                |       | 4,050 |   | — |   | 150 |   | (210 | ) | 142 |   | — |   | 8,538 |   |
| Equity  in earnings of unconsolidated affiliates, net of tax |       | —                                                                               |       | — |   | — |   | — |   | — |   | 8,646 |   | (8,646 | ) | — |   |
| Net  income (loss)                                           |       | $                                                                                    | 3,883      |   | $ | 5,873 |   | $ | 537 |   | $ | (19 | ) | $ | (1,418 | ) | $ | 9,929 |   | $ | (8,646 | ) | $ | 10,139 |   |

 
| ** **                                                   | ** ** | **For the Nine Months Ended September 30, 2007** | ** ** |
|--------------------------------------------------------------|------------|-------------------------------------------------------------------------------------|------------|
| ** **                                                   | ** ** | **Integrated  Telephony-  International**                                           | ** ** | **Rural  Wireless** | ** ** | **Island  Wireless** | ** ** | **Integrated  Telephony-  Domestic** | ** ** | **Wireless  Television  and Data** | ** ** | **Corporate** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| Revenues                                                     |       | $                                                                                   | 79,057     |   | $ | 40,718 |   | $ | — |   | $ | 10,987 |   | $ | 6,410 |   | $ | 7,850 |   | $ | (7,850 | ) | $ | 137,172 |   |
| Depreciation  and amortization                               |       | 11,671                                                                              |       | 5,132 |   | — |   | 1,332 |   | 1,608 |   | 232 |   | — |   | 19,975 |   |
| Non-cash  stock-based compensation                           |       | —                                                                              |       | — |   | — |   | 95 |   | — |   | 536 |   | — |   | 631 |   |
| (Gain)/Loss  on disposition of long-lived assets             |       | —                                                                              |       | (1,175 | ) | — |   | — |   | — |   | 258 |   | — |   | (917 | ) |
| Operating  income (loss)                                     |       | 33,949                                                                              |       | 19,309 |   | — |   | 1,444 |   | (1,255 | ) | 1,256 |   | (7,850 | ) | 46,853 |   |
| Interest  expense                                            |       | —                                                                              |       | (530 | ) | — |   | 7 |   | (2,622 | ) | (1,575 | ) | 3,124 |   | (1,596 | ) |
| Interest  income                                             |       | 483                                                                                 |       | 165 |   | — |   | 228 |   | — |   | 4,062 |   | (3,124 | ) | 1,814 |   |
| Income  taxes                                                |       | 14,133                                                                              |       | 7,429 |   | — |   | 501 |   | (439 | ) | 154 |   | — |   | 21,778 |   |
| Equity  in earnings of unconsolidated affiliates, net of tax |       | —                                                                              |       | — |   | — |   | — |   | — |   | 21,236 |   | (19,470 | ) | 1,766 |   |
| Net  income (loss)                                           |       | $                                                                                   | 12,853     |   | $ | 10,304 |   | $ | — |   | $ | 709 |   | $ | (3,861 | ) | $ | 24,814 |   | $ | (19,470 | ) | $ | 25,349 |   |

 

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| ** **                                                   | ** ** | **For the Nine Months Ended September 30, 2008** | ** ** |
|--------------------------------------------------------------|------------|-------------------------------------------------------------------------------------|------------|
| ** **                                                   | ** ** | **Integrated  Telephony-  International**                                           | ** ** | **Rural  Wireless** | ** ** | **Island  Wireless** | ** ** | **Integrated  Telephony-  Domestic** | ** ** | **Wireless  Television  and Data** | ** ** | **Corporate** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| Revenues                                                     |       | $                                                                                   | 74,615     |   | $ | 51,284 |   | $ | 8,074 |   | $ | 11,578 |   | $ | 6,401 |   | $ | 7,889 |   | $ | (7,889 | ) | $ | 151,952 |   |
| Depreciation  and amortization                               |       | 12,559                                                                              |       | 6,710 |   | 981 |   | 1,366 |   | 951 |   | 223 |   | — |   | 22,790 |   |
| Non-cash  stock-based compensation                           |       | —                                                                              |       | — |   | — |   | 95 |   | — |   | 660 |   | — |   | 755 |   |
| Gain  on disposition of long-lived assets                    |       | —                                                                              |       | — |   | — |   | — |   | — |   | — |   | — |   | — |   |
| Operating  income (loss)                                     |       | 32,116                                                                              |       | 26,024 |   | 2,166 |   | 1,280 |   | (1,407 | ) | 1,778 |   | (7,889 | ) | 54,068 |   |
| Interest  expense                                            |       | —                                                                              |       | (214 | ) | (323 | ) | (24 | ) | (2,638 | ) | (2,046 | ) | 3,196 |   | (2,049 | ) |
| Interest  income                                             |       | 528                                                                                 |       | 333 |   | 16 |   | 153 |   | — |   | 3,488 |   | (3,196 | ) | 1,322 |   |
| Income  taxes                                                |       | 13,933                                                                              |       | 9,642 |   | — |   | 536 |   | (492 | ) | (1,049 | ) | — |   | 22,570 |   |
| Equity  in earnings of unconsolidated affiliates, net of tax |       | —                                                                              |       | — |   | — |   | — |   | — |   | 23,450 |   | (22,715 | ) | 735 |   |
| Net  income (loss)                                           |       | $                                                                                   | 11,764     |   | $ | 13,995 |   | $ | 930 |   | $ | 518 |   | $ | (3,999 | ) | $ | 27,718 |   | $ | (22,715 | ) | $ | 28,211 |   |

 

**Segment Assets**

 
| **December 31, 2007** | ** ** | **Integrated  Telephony-  International** | ** ** | **Rural  Wireless** | ** ** | **Island  Wireless** | ** ** | **Integrated  Telephony-  Domestic** | ** ** | **Wireless  Television  And Data** | ** ** | **Corporate** | ** ** | **Consolidated** | ** ** |
|---------------------------------|------------|-------------------------------------------|------------|---------------------|------------|----------------------|------------|--------------------------------------|------------|-----------------------------------------|------------|---------------|------------|------------------|------------|
| Net Fixed Assets      |       | $                                         | 111,963    |                | $          | 34,868               |       | $                                    | —     |                                    | $          | 3,320         |       | $                | 4,884      |   | $ | 718 |   | $ | 155,753 |   |
| Goodwill                        |       | —                                    |       | 32,148              |       | —               |       | 7,196                                |       | —                                  |       | —        |       | 39,344           |       |
| Total Assets                    |       | 156,094                                   |       | 117,680             |       | —               |       | 22,922                               |       | 6,547                                   |       | 41,383        |       | 344,626          |       |
|                                 |            |                                           |            |                     |            |                      |            |                                      |            |                                         |            |               |            |                  |            |  |  |  |  |  |  |  |

 
| **September 30, 2008** | ** ** | **Integrated  Telephony-  International** | ** ** | **Rural  Wireless** | ** ** | **Island  Wireless** | ** ** | **Integrated  Telephony-  Domestic** | ** ** | **Wireless  Television  And Data** | ** ** | **Corporate** | ** ** | **Consolidated** | ** ** |
|----------------------------------|------------|-------------------------------------------|------------|---------------------|------------|----------------------|------------|--------------------------------------|------------|-----------------------------------------|------------|---------------|------------|------------------|------------|
| Net Fixed Assets                 |       | $                                         | 111,010    |                | $          | 47,461               |       | $                                    | 13,737     |                                    | $          | 9,879         |       | $                | 4,440      |   | $ | 511 |   | $ | 187,038 |   |
| Goodwill                         |       | -                                         |       | 32,148              |       | 2,382                |       | 7,271                                |       | —                                  |       | —        |       | 41,801           |       |
| Total Assets                     |       | 159,786                                   |       | 122,400             |       | 44,810               |       | 25,303                               |       | 5,823                                   |       | 28,927        |       | 387,049          |       |
|                                  |            |                                           |            |                     |            |                      |            |                                      |            |                                         |            |               |            |                  |            |  |  |  |  |  |  |  |

 

**Capital Expenditures**

 
| **Nine months Ended  September 30,** | ** ** | **Integrated  Telephony-  International** | ** ** | **Rural  Wireless** | ** ** | **Island  Wireless** | ** ** | **Integrated  Telephony-  Domestic** | ** ** | **Wireless  Television  and Data** | ** ** | **Corporate** | ** ** | **Consolidated** | ** ** |
|-----------------------------------------------------|------------|-------------------------------------------|------------|---------------------|------------|----------------------|------------|--------------------------------------|------------|-----------------------------------------|------------|---------------|------------|------------------|------------|
| 2007                                                |       | $                                         | 16,752     |                | $          | 13,585               |       | $                                    | -          |                                    | $          | 775           |       | $                | 66         |   | $ | 34 |   | $ | 31,212 |   |
| 2008                                                |       | 13,792                                    |       | 19,097              |       | 890                  |       | 418                                  |       | 400                                     |       | 14            |       | 34,611           |       |
|                                                     |            |                                           |            |                     |            |                      |            |                                      |            |                                         |            |               |            |                  |            |  |  |  |  |  |  |  |

 

**12. ****RELATED PARTY TRANSACTION**

 

In 2001, the Company curtailed the operations and funding of itsATN-Haiti and Transnet S.A. subsidiaries (the “Haitian Subsidiaries”),wrote-down its investment and began exploring strategic alternatives for theuse or disposition of the remaining assets of the Haitian Subsidiaries. In May 2006,the Company’s Board of Directors authorized the Company to enter intodiscussions to sell, at fair value, subject to review and final approval by theAudit Committee, the remaining assets of the Haitian Subsidiaries, consistingprimarily of an office building and 13 tower sites located in Haiti, toCornelius B. Prior, Jr., the Company’s Executive Chairman, who is also thefather of the Company’s Chief Executive Officer.

 

In August 2007, the Company, upon final approval by the Company’sBoard of Directors and Audit Committee, completed the sale of the remainingassets of the Haitian Subsidiaries to Access Haiti, S.A., a Haitian company inwhich Mr. Prior is a significant equity holder, for $750,000 and therelease by Access Haiti, S.A. of certain indebtedness of Transnet S.A. Inconnection with the sale, Mr. Prior agreed to indemnify the Company forany claims made against the Haitian Subsidiaries by creditors and vendors ofthe Haitian Subsidiaries in excess of $200,000 in the aggregate. In addition, pursuantto the purchase agreement Mr. Prior 

 

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purchased the Company’s remaining equity interests in the HaitianSubsidiaries for $1 on May 6, 2008.

 

During the nine months ended September 30, 2008, the Company’s Commnetsubsidiary purchased certain equipment from Mobile Network Services, LLC,(“MNS”) for approximately $244,000. MNS was founded in 2007 by Brian A.Schuchman, one of the Company’s directors, who beneficially owns approximately50% of the equity interests in MNS. Michael T. Prior, the Company’s President,Chief Executive Officer and Director, and Justin D. Benincasa, the Company’sChief Financial Officer and Treasurer, each beneficially own 1.0% or less ofthe equity interests in MNS.

 

**13.  COMMITMENTS ANDCONTINGENCIES**

 

**Regulatory and Litigation Matters**

 

The Company and its subsidiaries are subject to certain regulatory andlegal proceedings and other claims arising in the ordinary course of business,some of which involve claims for damages and taxes that are substantial inamount. The Company believes that, except for the items discussed below, forwhich the Company is currently unable to predict the final outcome, thedisposition of proceedings currently pending will not have a material adverseeffect on the Company’s financial position or results of operations.

 

***Regulatory***

 

The Company’s Guyana subsidiary, GT&T, is subject to regulation inGuyana under the provisions of its license and under the Guyana PublicUtilities Commission Act of 1999 and the Guyana Telecommunications Act of 1990.GT&T also has certain significant rights and obligations under theagreement pursuant to which the Company acquired its interest in GT&T in1991. In addition, because of the large volume of traffic that GT&T haswith the United States, GT&T can be significantly affected by orders ofU.S. regulatory agencies.

 

In a letter dated September 8, 2006, Guyana’s National FrequencyManagement Unit (“NFMU”) implied that spectrum fees in 2008 and onward may beincreased beyond an amount agreed between GT&T and the Government. GT&Tstated its position in a September 14, 2006 letter to the GuyanaGovernment that, by agreement with the Government, spectrum fees would becapped until the NFMU develops a fee methodology, acceptable to all GSMSpectrum licensees, that results in total spectrum fees payable that do notappreciably exceed the capped amount. In correspondence to GT&T in September 2007,the NFMU stated, without indicating whether a fee methodology would bedeveloped, that the cap on GSM spectrum fees will be removed in December 2007.In a letter dated July 3, 2007 to the NFMU, GT&T objected to the NFMU’sproposed action and reiterated its position that determining spectrum feesprior to development of an acceptable methodology would violate the Government’sprior agreement.  The NFMU has notaddressed this matter or issued an invoice to GT&T for spectrum fees.

 

Since 2001, the Government has stated its intention to introduceadditional competition into Guyana’s telecommunications sector. In 2002, theGovernment held formal discussions with GT&T regarding this matter. In February andMarch 2008, at the request of the Government, GT&T met withhigh-ranking Government officials to discuss potential modifications ofGT&T’s exclusivity rights and the introduction of competition for internationalvoice and data services. ATN and GT&T believe that such competition isprecluded by GT&T’s exclusive license to provide domestic fixed (localexchange) and international voice and data services in Guyana, which has astated expiration in December 2010 and is renewable for an additional20 year term at GT&T’s option.

 

ATN and GT&T believe that any early termination of our exclusivitywould require our consent and appropriate compensation to GT&T, includingbut not limited to, an adjustment of service rates to reflect the real economiccost to GT&T of providing such services. The Government has informallyindicated that it anticipates a transition to full competition in thetelecommunications sector will require a significant rebalancing of local andlong distance rates for domestic and international services provided byGT&T.  GT&T is working with theGovernment to develop an appropriate methodology and process to implement raterebalancing during and after a transition to competition.  Further, ATN and GT&T believe thatcertain modifications to the legal and regulatory regime governing thetelecommunications market sector in Guyana would be needed, as well as thesatisfactory resolution of certain long-standing claims between ATN andGT&T and the Government relating to certain tax and other matters (asdescribed below), for GT&T to consider voluntarily relinquishing its rightsby law and contract to be the exclusive provider of domestic fixed andinternational voice and data services in Guyana.  Although informal discussions are ongoing, wehave been open about our willingness to forego renewal of our internationalexclusivity rights in 2010 as part of an overall settlement and agreement,although the Government had previously indicated to us a desire to introducecompetition in international services in late 2008.

 

In October 2008, GT&T was informally notified that the Governmenthas retained the services of a US-based law firm, to develop the legislativeand regulatory reforms necessary to introduce telecommunications competition inGuyana.  At this time, ATN and GT&Tdo not know if there will be any regulatory developments in Guyana that willhave the effect of terminating or limiting the exclusivity provision of ourlicense, and if so, the timing of any such developments and whether they wouldbe pursuant to an agreement between GT&T and the Government. Other thanentering into such an agreement on terms acceptable to us, ATN and GT&Twould seek to enforce GT&T’s rights by law and contract to be the exclusiveprovider of international voice and data services in Guyana. Although ATN andGT&T believe that they would be entitled to damages for any involuntarytermination of that exclusive license, ATN and GT&T cannot guarantee thatwe would prevail in any court or arbitration proceeding.

 

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On January 15, 2007, the Public Utilities Commission (“PUC”)issued a ruling that fixed floor and ceiling rates for both the pre-paid andthe post-paid cellular services offered by GT&T and its competition.GT&T’s national competitor has been offering promotions that appear to usto violate the floor on cellular rates. We believe the PUC is discriminatelyenforcing the new minimum and maximum rates in favor of GT&T’s primarycompetitor and, in late 2007, GT&T filed a lawsuit contesting the PUC’senforcement which remains outstanding. The PUC has indicated its intent to revisit the floor rate and,possibly, eliminate it.

 

In January 2007, the PUC ordered GT&T and GT&T’s national competitorto implement per-second billing for cellular airtime as opposed to thepre-existing practice of per-minute billing for airtime. The PUC has initiateda proceeding to consider expanding per-second billing to non-mobile,international outbound service.  Any suchaction by the PUC could have an adverse effect on GT&T’s financialcondition or results of operations.

 

In October 1997, the PUC ordered GT&T to increase the numberof telephone lines in service to a total of 69,278 lines by the end of 1998;89,054 lines by the end of 1999; and 102,126 lines by the end of 2000; toallocate and connect an additional 9,331 telephone lines before the end of1998; and to provide to subscribers who request them facilities for calldiversion, call waiting, reminder call, and three-way calling by the end of1998. In issuing this order, the PUC did not hear evidence or make any findingson the cost of providing these lines and services, the adjustment in telephonerates that may be necessary to give GT&T a fair return on its investment,or the ways and means of financing the requirements of the PUC’s order.GT&T has appealed the PUC’s order to the Guyana Court of Appeal, and thatappeal is still pending. No stay currently exists against this order.

 

In July 2004, the FCC released an order revising the spectrum bandplan applicable to the Broadband Radio Service and Educational BroadbandService. These are the spectrum bands through which Choice operates its videoand broadband data services. The new rules restructure these spectrumbands and could materially impact Choice customers and operations if Choice isrequired to transition to the new band plan. The FCC has stated that it willconsider requests for waiver of the new band plan requirements on acase-by-case basis and described the circumstances under which waivers would begranted. To date the FCC has granted at least three waivers that excuseentities similar to Choice from the re-banding requirement. On April 30,2007, Choice filed a waiver request at the FCC, which remains pending.

 

***Litigation***

 

Upon the acquisition of GT&T in January 1991, ATN entered intoan agreement with the government of Guyana to significantly expand GT&T’sexisting facilities and telecommunications operations and to improve servicewithin a three-year period pursuant to an expansion and service improvementplan (the “Plan”). The government agreed to permit rate increases in the eventof currency devaluation within the three-year period, but GT&T was unableto get timely increases when the Guyanese currency suffered a sharp decline in March 1991.The Plan was modified in certain respects, and the date for completion of thePlan was extended to February 1995. Since 1995, the PUC has had pending aproceeding initiated by the Minister of Telecommunications of Guyana withregard to the failure of GT&T to complete the Plan by February 1995.The PUC last held hearings on this matter in 1998. It is GT&T’s positionthat its failure to receive timely rate increases in compensation for thedevaluation of currency in 1991 provides legal justification for GT&T’sdelay in completing the Plan. If the PUC were to find that GT&T was notexcused from fulfilling the terms of the Plan by February 1995, GT&Tcould be subject to monetary penalties, cancellation of its license, or otheraction by the PUC or the government that could have a material adverse effecton the Company’s business and prospects. The requirements of the Plan weresubstantially completed more than five years ago. GT&T believes that itsobligations have been fulfilled and it has continued to aggressively developthe telecommunications infrastructure in all areas including landline, wirelessand data.

 

GT&T is contesting income tax assessments of approximately$7.3 million that it has received from the commissioner of Inland Revenuefor the years 1991-1996 based on the disallowance as a deduction for income taxpurposes of five-sixths of the advisory fees payable by GT&T to theCompany. The deductibility of these advisory fees was upheld for one of theseyears by a decision of the High Court in August 1995. The GuyanaCommission of Inland Revenue has filed a High Court Writ seeking an ordersetting aside that decision on the grounds that the Commissioner did not have aproper hearing. GT&T has contested that Writ. The assessments for the otheryears are being held in abeyance pending decision on the Writ and GT&Tmotions to strike. Subsequent to December 31, 2001, GT&T receivedassessments for the years 1997-2000 in the aggregate amount of approximately$6.5 million raising the same issues. GT&T expects that proceedings onthese assessments will also be held in abeyance pending the Court’s decision.

 

In November 1997, GT&T received assessments of the currentequivalent of approximately $9.7 million from the commissioner of InlandRevenue for taxes for the years 1991 through 1996. It is GT&T’sunderstanding that these assessments stem from an audit that the Guyana HighCourt stayed before it was completed. Apparently, because the audit was cutshort as a result of the High Court’s order, GT&T did not receive noticeof, and an opportunity to respond to, the proposed assessments as is thecustomary practice in Guyana, and substantially all of the issues raised in theassessments appear to be based on mistaken facts. GT&T has applied to theGuyana High Court for an order prohibiting the commissioner of Inland Revenuefrom enforcing the assessments on the grounds that the origin of the audit andthe failure to give GT&T notice of, and opportunity to respond to, theproposed assessments violated Guyanese law. The Guyana High Court has issued anorder effectively prohibiting any action on the assessments pending the determinationby the High Court of the merits of GT&T’s application.

 

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Should GT&T be held liable for any of the above tax liabilities,totaling $23.5 million, the Company believes that the government of Guyanawould be obligated to reimburse GT&T for any amounts that would reduceGT&T’s return on investment to less than 15% per annum for the relevantperiods.

 

In early 2000, Inet Communications, Inc., an internet serviceprovider in Guyana, and the Guyana Consumers Association filed a suit in theHigh Court against the Attorney General of Guyana and GT&T. The suit claimsthat GT&T is not entitled to rate increases based on the agreement betweenthe Government of Guyana and ATN and that the Civil Law of Guyana prohibitswhat is referred to as GT&T’s monopoly. Inet’s motion was struck down fornon-appearance of counsel. However, Inet’s counsel has applied for the matterto be restored. The Court has not yet taken action on Inet’s application.

 

In July 2002 an individual sued the Attorney General of Guyana inthe Guyana courts asking, among other things, for a declaration that thesection of the Company’s 1990 contract with the Government of Guyana grantingto GT&T an exclusive right to operate a telecommunications system in Guyanawas null and void as contrary to law and to the Constitution of Guyana.GT&T has joined the suit to contest these claims and this proceedingremains pending.

 

For further information concerning other pending litigation matters,the disposition of which could have a material adverse effect on the Company’sfinancial position or results of operations, see “Notes to ConsolidatedFinancial Statements, Note 12, Commitments and Contingencies — Regulatory andLitigation Matters” in our 2007 Form 10-K.

 

**Item 2. Management’s Discussion and Analysis ofFinancial Condition and Results of Operations**

 

Thisdiscussion should be read in conjunction with Management’s Discussion andAnalysis of Financial Condition and Results of Operations included in our 2007 Form 10-K.Some of the statements in the discussion are forward-looking statements whichare subject to risks, uncertainties and other factors that could cause actualresults to differ materially from future results expressed or implied by suchforward-looking statements. These risk factors include those discussed underItem 1A, “Risk Factors” in our 2007 Form 10-K and those set forth in thisReport under “Cautionary Statement Regarding Forward-Looking Statements.”

 

**OVERVIEW**

 

Weprovide wireless and wireline telecommunications services in the Caribbean andNorth America through the following principal operating subsidiaries:

 

·       GuyanaTelephone & Telegraph Company, Ltd. (or GT&T), the nationaland international telephone company in the Republic of Guyana and the largestwireless service provider in that country. We have owned 80% of the equity ofGT&T since January 1991.

 

·       CommnetWireless, LLC (or Commnet), an owner and operator of wholesale wirelessnetworks in rural areas of the United States. Commnet provides wireless voice anddata communications roaming services primarily to national, regional and localwireless carriers. We acquired 95% of the equity of Commnet in September 2005and the remaining 5% in January 2007.

 

·         Bermuda Digital Communications, Ltd. (orBDC), the largest wireless voice and data communications service provider inBermuda, doing business under the name “Cellular One”. We acquired an equityinterest in, and signed a management contract with, BDC in 1998.  On May 15, 2008, BDC completed a sharerepurchase of its common stock.  We didnot tender any shares for repurchase, and, as a result of the transaction,increased our holdings from 43% to approximately 58% of BDC’s outstandingcommon stock.  Prior to this increase inholdings, we accounted for our investment in BDC under the equity method andearnings from BDC did not appear in our income from operations, but wereinstead reflected in equity in earnings of unconsolidated affiliates.  Effective with the completion of BDC’s sharerepurchase, we began consolidating BDC’s results of operations. BDC alsoprovides wireless services in Turks andCaicos through an investment made in the third quarter 2008.

 

·         Sovernet, Inc., (orSovernet), a facilities-based integrated voice, broadband data communicationsand dial-up service provider in New England and New York state. Sovernet’sretail telecommunications services is delivered to business and residentialcustomers in Vermont and New Hampshire. Through an investment made in 2008, Sovernet also delivers wholesale transportservices in New York State through ION. We have owned 96% of Sovernet since itsacquisition in February 2006.

 

·       ChoiceCommunications, LLC (or Choice), a leading provider of fixed wireless broadbanddata services, wireless digital television services and dial-up internetservices to retail and business customers in the U.S. Virgin Islands. Weacquired Choice in October 1999 and own 100% of the equity of Choice.

 

As a holding company, we provide management,technical, financial, regulatory, and marketing services to, and typicallyreceive a management fee equal to approximately 3% to 6% of revenues from eachoperating subsidiary.  Management feesfrom consolidated subsidiaries are eliminated in consolidation.  Management fees from unconsolidated affiliatesare included in “Other Income” in the accompanying statements of operations.

 

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The following chart summarizes the operatingactivities of our principal subsidiaries and the markets they serve as of September 30,2008:

 
| **Services**                | ** ** | **Segment**                                                                                  | ** ** | **Operating Subsidiary**               | ** ** | **Markets**                                                                |
|-----------------------------|------------|----------------------------------------------------------------------------------------------|------------|---------------------------------------------|------------|----------------------------------------------------------------------------|
| Wireless                    |       | Rural Wireless Integrated Telephony-International Island Wireless                            |       | Commnet  GT&T  BDC                      |       | United States (rural markets) Guyana Bermuda, Turks & Caicos      |
|                        |       |                                                                                         |       |                                        |       |                                                                       |
| Local Telephone and Data    |       | Integrated Telephony-International Integrated Telephony-DomesticWireless Television and Data |       | GT&T Sovernet  Choice (internet access) |       | Guyana United States (New England and New york State) U.S. Virgin  Islands |
|                        |       |                                                                                         |       |                                        |       |                                                                       |
| International Long Distance |       | Integrated Telephony-International                                                           |       | GT&T                                    |       | Guyana                                                                     |
|                        |       |                                                                                         |       |                                        |       |                                                                       |
| Other                       |       | Wireless Television and Data                                                                 |       | Choice (digital television)                 |       | U.S. Virgin Islands                                                        |

 

For information about our business segments andgeographical information about our operating revenues and long-lived assets,see Note 11 to the Consolidated Financial Statements included in this Report.

 

In the past, we generated most of our revenue and operating income fromour GT&T operations and we continue to rely on GT&T for a significantportion of our revenues and profits. GT&T provides domestic fixed (local exchange)and international voice and data service pursuant to an exclusive license fromthe Government of Guyana and provides wireless service on a non-exclusivebasis. The rates that GT&T may charge for its services are regulated by thePublic Utility Commission of Guyana (or PUC), an independent regulatory bodyresponsible for regulating telecommunications. See “Business—Regulation of OurGT&T Subsidiary” in the 2007 Form 10-K. The largest component ofGT&T’s contribution to our consolidated revenue and profit has been fromits international long distance business and that business still accounts forroughly half of GT&T’s revenue.  Mostof these revenues and profits are from payments by foreign carriers, which aredenominated in U.S. dollars, for handling international long distance callsoriginating by foreign carriers and terminating in Guyana. The rates at whichGT&T collects fees from foreign carriers are established by agreementsbetween it and foreign carriers, and can be affected by limits set by foreigntelecommunications regulators, especially the U.S. Federal CommunicationsCommission (or FCC). The primary drivers of the long distance business are thepopulation of Guyanese living abroad who initiate calls to Guyana, the rateforeign carriers pay GT&T for handling the incoming international calls,and the number of people in Guyana capable of receiving international longdistance calls, which consist of wireline telephone customers and all thewireless subscribers in Guyana (including subscribers to competitor wirelessservice providers). In addition, in recent years, we believe various methods ofillegal bypass and alternative and cheaper media for communication, such ase-mail and text messaging, may have had a negative impact on both voice trafficand on international long distance revenues. We have taken a number of measuresto counter illegal bypass, including taking action against unlicensed operatorsin Guyana, introducing special outbound call center rates and we are examiningautomated technical solutions as well. GT&T has also recently faced anincreased competitive environment for wireless services in Guyana. Digicel’sentry into the Guyana wireless market has significantly increased thecompetition we face. Since early 2007, Digicel has used aggressive operationaland capital spending to gain market share, including promotional pricing, theuse of extensive give-a-ways and handset subsidies. In turn, we have counteredwith our own promotions and accelerated the timing of some of our capitalexpenditures on network expansion and upgrades. We believe that networkcoverage and quality of service at competitive prices are some of the mostimportant bases on which we compete. In the short-term, however, promotions canhave a significant effect on the market. This heightened competition hasresulted in higher marketing expense, particularly in 2007, and a decline inmarket share.

 

In 2005 and 2006, we entered new businesses and markets through ouracquisitions of Commnet and Sovernet. These businesses have provided us withnew sources of revenues and with additional growth opportunities. As a result,while GT&T continues to represent a significant portion of our revenues andprofits, its relative contribution to our consolidated revenues andconsolidated net income has declined significantly in recent years. For thequarters ended September 30, 2007 and 2008, GT&T generatedapproximately 55% and 44%, respectively, of our consolidated revenues.  Commnet generated approximately 72% and 65%of our wireless revenue for the third quarter of 2007 and 2008, respectively.Sovernet generated approximately 31% and 32% of our local telephone and datarevenue for the three months ended September 30, 2007 and 2008. We areactively evaluating additional acquisition opportunities of businesses thatmeet our return on investment and other acquisition criteria.

 

**Recent Developments**

 

*Guyana Operations.*    Since 2001, the Government of Guyana has stated its intention to introduceadditional competition into Guyana’s telecommunications sector, includingconducting formal discussions with GT&T in 2002 regarding this matter. In 

 

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February and March 2008, at the request of the Government,GT&T met with high-ranking members of the Government to discuss potentialmodifications of GT&T’s exclusive right to provide domestic fixed (LocalExchange) and international voice and data services. We believe that suchcompetition is precluded by the exclusivity provisions of our license, whichhas a stated expiration in December 2010 and is renewable for anadditional 20 year term at our option.

 

We believe that any early termination of our exclusivity would requireour consent and appropriate compensation to GT&T, including but not limitedto, an adjustment of service rates to reflect the real economic cost toGT&T of providing such services.  TheGovernment recently indicated that a transition to full competition in thetelecommunications sector is anticipated to require a significant rebalancing oflocal and long distance rates for domestic and international services providedby GT&T.  GT&T is working withthe Government to develop an appropriate methodology and process to implementrate rebalancing during and after a transition to competition.

 

Further, we believe that certain modifications to the legal andregulatory regime governing the telecommunications market sector in Guyanawould be needed, as well as the satisfactory resolution of long-standing claimsbetween us and the Government relating to tax and other matters (as describedin Note 12 to our 2007 Form 10-K), for us to consider voluntarilyrelinquishing GT&T’s rights by law and contract to be the exclusiveprovider of international voice and data services in Guyana. Althoughdiscussions are ongoing, we have been open about our willingness to foregorenewal of our international exclusivity rights in 2010 as part of an overallsettlement and agreement, although the Government has previously indicated tous a desire to introduce competition in international services in late 2008.

 

In October 2008, GT&T was informally notified that theGovernment has retained the services of a U.S. based law firm to develop thelegislative and regulatory reforms necessary to introduce telecommunicationscompetition in Guyana. At this time, we do not know if there will be anyregulatory developments in Guyana that will have the effect of terminating orlimiting our exclusive license, and if so, the timing of any such developmentsand whether they would be pursuant to an agreement between us and theGovernment. Other than entering into such an agreement on terms acceptable tous, we would seek to enforce GT&T’s rights by law and contract to be theexclusive provider of international voice and date services in Guyana. Althoughwe believe that we would be entitled to damages for any involuntary terminationof that license, we cannot guarantee that we would prevail in any court orarbitration proceeding.

 

We are highly dependent on GT&T for a significant portion of ourrevenues and profits. For the three months ended September 30, 2008approximately 44% of our consolidated revenue and approximately 38% of ourconsolidated net income, respectively, were generated by GT&T. Ourinternational long distance revenues from GT&T have accounted forapproximately 21% of our consolidated revenue during the three months ended September 30,2008. As of September 30, 2008, we have invested approximately $290million in Guyanese telecommunications infrastructure. A loss of exclusivity oninternational voice and data services would result in a reduction in theinternational call traffic that we handle and could also result in a decline ininternational calling rates and termination fees. Any revocation, earlytermination or other modification of the exclusivity provisions of our licensecould adversely affect a majority of our revenues and profits and diminish thevalue of our investment in Guyana. See “Risk Factors—Our exclusive license toprovide local exchange and long distance telephone services in Guyana issubject to significant political and regulatory risk” in our 2007 Form 10-K.

 

*Commnet Transaction.*    InDecember 2007, Commnet completed the sale of 59 base stations, along withspectrum licenses, in two Midwestern states for total consideration ofapproximately $17.0 million and recorded a pre-tax gain of$5.0 million. At the same time, Commnet entered into an agreement withthis carrier to purchase spectrum, lease additional spectrum and build anetwork in rural areas in three other states. This new network consists ofapproximately 84 base stations, and includes a long-term roaming agreement withthis carrier. The agreement also provides the carrier with a purchase option onthe new base stations exercisable beginning in 2010 through 2012 at apredetermined price each year. The purchase price consideration reduces eachoption year and was determined based on estimates of what would be needed toprovide a reasonable return on our investment and is intended to be reflectiveof the then fair value of the base stations.

 

*BDC.*    On May 15,2008, BDC completed a $17.0 million share repurchase of its common stock. Wedid not tender any shares for repurchase, and, as a result of the transaction,increased our holdings from 43% to approximately 58% of BDC’s outstandingcommon stock.  We funded the transactionby loaning BDC $17.0 million from our cash on hand.

 

Upon completion of the tender offer, BDC’s option,which would have been exercisable in July 2008, to repurchase from us allof our equity interest in BDC, was replaced with our right, exercisable in May 2013,to purchase all of BDC’s then remaining outstanding common stock at the thenfair value of the shares.  In the eventwe do not exercise that right, BDC will then have the right to purchase all ofour equity interest in BDC at the then fair value of the shares.

 

OnSeptember 1, 2008, BDC completed its acquisition of 42% of the equity ofIslandcom Telecommunications (“Islandcom”), a provider of wirelesstelecommunication services in Turks & Caicos for $6.0 million incash.  If current laws, which restrictforeign ownership of companies operating in Turks & Caicos, arechanged, BDC will be able to increase its ownership in 

 

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Islandcomfrom 42% to 76% through the exercise of a warrant received as a part of theacquisition.  Since officers of ATN andBDC make up a majority of Islandcom’s board of directors, the Company hasconsolidated the operating results of Islandcom since the date of acquisition.BDC founded the acquisition with an additional $5.0 million loan from ATN andcash on hand.

 

*Sovernet Acquisition.*  On August 15, 2008,Sovernet completed its acquisition of 75% of the equity of ION, LLC (“ION”), anupstate New York provider of high capacity communications network transportservices for $5.6 million in cash.  Theacquisition of ION continues the Company’s strategy of providing high qualitynetwork services to underserved rural markets. Beginning with the acquisitiondate, the Company began consolidating the results of ION in its results ofoperations.

 

*Global economy.*  Our operations and performance depend ongeneral economic conditions.  The globaleconomy recently experienced, and could continue to experience, an economicdownturn due to the crisis in credit markets, slower economic activity,concerns about inflation, increased energy costs, decreased consumer confidenceand other adverse business conditions. Such fluctuations in the global economy could cause, among others,deterioration and continued decline in spending and increase in the cost oflabor and materials.  As a result, ouroperating results could be significantly harmed.

 

**Resultsof Operations**

** **

***ThreeMonths Ended September 30, 2008 and 2007***

 
| ** **                                                                                               | ** ** | **Three Months Ended  September 30,** | ** ** | **Amount of  Increase** | ** ** | **Percent  Increase** | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|------------------------------|------------|-----------------------|------------|
| ** **                                                                                               | ** ** | **2007**                                             | ** ** | **2008**                     | ** ** | **(Decrease)**        | ** ** | **(Decrease)** | ** ** |
| ** **                                                                                               | ** ** | **(In thousands)**                              | ** ** |
| **REVENUE:**                                                                                             |       |                                                 |       |                         |       |                  |       |   |   |
| Wireless                                                                                                 |       | $                                                    | 22,074     |                         | $          | 30,388                |       | $ | 8,314 |   | 37.7 |   |
| Local telephone and data                                                                                 |       | 11,642                                               |       | 12,807                       |       | 1,165                 |       | 10.0 |   |
| International long distance                                                                              |       | 13,335                                               |       | 11,794                       |       | (1,541                | )          | (11.6 | ) |
| Other                                                                                                    |       | 1,043                                                |       | 919                          |       | (124                  | )          | (11.9 | ) |
| Total revenue                                                                                            |       | 48,094                                               |       | 55,908                       |       | 7,814                 |       | 16.2 |   |
| **OPERATING  EXPENSES:**                                                                                 | ** ** | ** **                                           | ** ** | ** **                   | ** ** | ** **            | ** ** | ** ** | ** ** |
| Termination and access fees                                                                              |       | 7,944                                                |       | 9,612                        |       | 1,668                 |       | 21.0 |   |
| Internet and programming                                                                                 |       | 857                                                  |       | 869                          |       | 12                    |       | 1.4 |   |
| Engineering and operations                                                                               |       | 5,420                                                |       | 6,431                        |       | 1,011                 |       | 18.7 |   |
| Sales and marketing                                                                                      |       | 3,614                                                |       | 3,123                        |       | (491                  | )          | (13.6 | ) |
| General and administrative                                                                               |       | 5,804                                                |       | 7,228                        |       | 1,424                 |       | 24.5 |   |
| Depreciation and amortization                                                                            |       | 6,815                                                |       | 8,289                        |       | 1,474                 |       | 21.6 |   |
| Loss on disposition of long-lived assets                                                                 |       | 258                                                  |       | —                       |       | (258                  | )          | (100.0 | ) |
| Total operating expenses                                                                                 |       | 30,712                                               |       | 35,552                       |       | 4,840                 |       | 15.8 |   |
| Income from operations                                                                                   |       | 17,382                                               |       | 20,356                       |       | 2,974                 |       | 17.1 |   |
| **OTHER  INCOME (EXPENSE):**                                                                             | ** ** | ** **                                           | ** ** | ** **                   | ** ** | ** **            | ** ** | ** ** | ** ** |
| Interest expense                                                                                         |       | (720                                                 | )          | (733                         | )          | (13                   | )          | (1.8 | ) |
| Interest income                                                                                          |       | 713                                                  |       | 344                          |       | (369                  | )          | (51.8 | ) |
| Other income, net                                                                                        |       | 282                                                  |       | (4                           | )          | (286                  | )          | (101.4 | ) |
| Other income (expense), net                                                                              |       | 275                                                  |       | (393                         | )          | (668                  | )          | (242.9 | ) |
| **INCOME  BEFORE INCOME TAXES, MINORITY INTERESTS AND EQUITY IN EARNINGS OF  UNCONSOLIDATED AFFILIATES** |       | 17,657                                               |       | 19,963                       |       | 2,306                 |       | 13.1 |   |
| Income taxes                                                                                             |       | 7,863                                                |       | 8,538                        |       | 675                   |       | 8.6 |   |
| **INCOME  BEFORE MINORITY INTERESTS AND EQUITY IN EARNINGS OF UNCONSOLIDATED AFFILIATES**                |       | 9,794                                                |       | 11,425                       |       | 1,631                 |       | 16.7 |   |
| Minority interests, net of tax                                                                           |       | (1,060                                               | )          | (1,286                       | )          | (226                  | )          | (21.3 | ) |
| Equity in earnings of unconsolidated  affiliates, net of tax                                   |       | 668                                                  |       | —                       |       | (668                  | )          | (100.0 | ) |
| **NET  INCOME**                                                                                          |       | $                                                    | 9,402      |                         | $          | 10,139                |       | $ | 737 |   | 7.8 |   |

 

*Wirelessrevenue.* Wireless revenue includes wholesale voice anddata roaming revenue from our rural U.S. operations and retail wirelessrevenues generated in Guyana.  For 2008,wireless revenue also includes retail wireless revenues generated by our IslandWireless segment.

 

Wireless revenue increased to $30.4 million for thethree months ended September 30, 2008 from $22.1 million for the threemonths ended September 30, 2007, an increase of $8.3 million, or 38% ofthis increase, $5.1 million was attributable to the consolidation of BDC, whichwe began consolidating as of May 15, 2008.

 

Notwithstanding the sale of 59 base stations duringthe fourth quarter of 2007, our rural U.S. business increased its revenues by$3.9 million, or 24%, to $19.9 million from $16.0 million for the quarter endedSeptember 30, 2008 and 2007, respectively. The increase in revenue fromthis business was due primarily to growth in voice and data traffic at existingsites as well as the continued 

 

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deployment of additional GSM and CDMA wireless basestations that generated additional minutes of use. Data revenue also increasedas a result of the upgrade of many base stations’ data capability, capacity andoverall volume growth.  As of September 30,2008 a total of 396 base stations were deployed as compared to 333 basestations as of September 30, 2007. Of the 396 total base stations, all wereGSM and CDMA base stations as of September 30, 2008, as compared to 287GSM and CDMA base stations as of September 30, 2007. In November 2008, weagreed to a new, multi-year roaming agreement with one of our largest carriercustomers. While the new rates are reasonable and there are volume adjustments,they represent a reduction on previous rates and we expect rates for othermajor customers to decline as well in 2009. We have reduced rates previously, particularly data rates, and havemanaged to avoid a material negative impact to date through volume growth andrigorous cost controls.  

 

Going forward, we expect rate reductions to reduce ourorganic revenue growth rate and to put some pressure on operating margins.

 

The increase in wireless revenue from our rural U.S.operations and BDC was partially offset by a decline in wireless revenue inGuyana.  This decline in revenue in thethird quarter of 2008 reflects the continued impact of competition and adecrease in rates. This additional competition in Guyana caused our wirelesssubscribers to decrease by 57,000, or 17%, from 330,000 subscribers as of September 30,2007 to 273,000 subscribers as of September 30, 2008. These factorsresulted in a $0.7 million decrease in GT&T’s wireless revenue from $6.1 millionduring the third quarter of 2007 to $5.4 million during the same period of2008.

 

We anticipate that our wireless revenue will continueto increase in future periods, although at a slower rate, as a result of ourincreased interest in BDC, which is now consolidated into our results ofoperations, and from the continued growth of our rural U.S. operations. Theincrease in voice and data traffic from our rural U.S. operations is likely beoffset, in part, by scheduled and negotiated reductions in rates.  In our Guyana retail wireless business, weexpect that the network capacity and coverage we have added may lead toincreased traffic over time, although competitive pressures in the past yearhave caused a decline in our subscriber base which may limit future growth oreven cause further decline.

 

*Local telephone and datarevenue.*Local telephone anddata revenue is generated by our wireline operations in Guyana, our integratedvoice and data operations in New England and New York state and our data servicesin the U.S. Virgin Islands. This revenue includes basic service fees, measuredservice revenue, and internet access fees, as well as installation charges fornew lines, monthly line rental charges, long distance or toll charges(excluding international long distance charges in Guyana), maintenance andequipment sales.

* *

Local telephone and data revenue increased by $1.2million, or 10%, to $12.8 million for 2008 from $11.6 million for 2007. Of theincrease, $0.7 million is attributable to growth in GT&T’s access lines inGuyana from approximately 127,000 lines as of September 30, 2007 toapproximately 136,000 lines as of September 30, 2008 (an increase of 7%),increased interconnect fees, growth in broadband data customers in Guyana andcontinued strong growth in wireless broadband customers in the U.S. VirginIslands. Sovernet increased revenues by $0.5 million, due mainly to theacquisition of ION on August 15, 2008. Sovernet continues to add businesscustomers for its voice and data services and improve profitability, though itsoverall revenue is partially offset by the decline in its residential databusiness, particularly its dial-up internet services.  In future periods, we anticipate that localtelephone and data revenue will increase modestly as a result of network andsubscriber and access line growth in the U.S. Virgin Islands and New Englandand increased transport revenues in update New York and, to a lesser extent,increased data revenue in Guyana.

 

*International long distance revenue.*International long distance revenue is generated by international telephonecalls into and out of Guyana and does not include international long distancerevenue generated by our other operations. Inbound traffic, which made up 84%of all international long distance traffic and more than 69% of internationallong distance revenue for the three months ended September 30, 2008, issettled in U.S. dollars.

 

Internationallong distance revenue was $11.8 million during the third quarter, a decrease of$1.5 million, or 11%, from $13.3 million in 2007.  The outcome of negotiations with theGovernment of Guyana regarding the exclusivity terms of GT&T’s license islikely to negatively impact this revenue in the future.  We are also subject to illegal bypass viainternet calling, which we believe increased considerably in 2008, and competeagainst alternative and cheaper media for communication, such as e-mail andtext messaging. These other modes of communication may cause a decline in bothvoice traffic and in international long distance revenues in future periods,although we may see a slight increase in traffic and revenues if we areeffective in combating illegal bypass.

 

*Other revenue*. Other revenue represents revenue from digital televisionservices in the U.S. Virgin Islands, which decreased to $0.9 million in 2008from $1.0 million in 2007. Our growth in revenue from our wireless digitaltelevision services is expected to continue to slow in the future as a resultof minimal anticipated future subscriber and market share growth within ourcurrently existing geographic footprint.

 

*Termination and access feeexpenses*. Termination andaccess fee expenses are charges that we pay for voice and data transportcircuits (in particular, the circuits between our rural wireless sites and ourswitches), internet capacity and other access fees we pay to terminate ourcalls.

 

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*Termination and access fee expenses increased by $1.7million, or 22%, from $7.9 million to $9.6 million from 2007 to 2008,respectively as a result of increased traffic at Commnet, the consolidation ofBDC’s results of operations and an increase in expenses at Sovernet due to consolidationof the operating results of ION, which Sovernet acquired in August 2008acquisition of ION. This increase, was however, partially offset by a decreasein traffic at GT&T.  These expensesare expected to increase in future periods, but remain fairly consistent ascompared to their related revenues, as our rural wireless CLEC operations in theUnited States expand.*

* *

*Internet and programmingexpenses.*Internet andprogramming expenses include internet connectivity charges and digital televisionprogramming.

* *

*Internet and programming expenses remained at $0.9 millionfrom 2007 to 2008. We expect that internet and programming expenses will remainfairly consistent as a percentage of related revenues in the near future.*

* *

*Engineering and operationsexpenses.*Engineering andoperations expenses include the expenses associated with developing, operating,supporting and expanding our networks, including the salaries and benefits paidfor employees directly involved in the development and operation of ournetworks.

* *

Engineering and operations expenses increased by $1.0million, or 19%, from $5.4 million to $6.4 million for 2007 to 2008,respectively. This increase was primarily the result of the consolidation ofthe operating results of our BDC subsidiary as well as the expansion of ourwireless networks in the United States and Guyana. We expect that engineeringand operations will continue to increase to further support our growing domesticand international networks.

 

*Sales and marketingexpenses.*Sales, marketingand customer service expenses include salaries and benefits we pay for salespersonnel, customer service expenses, sales commissions and the costsassociated with the development and implementation of our promotion andmarketing campaigns.

* *

Sales and marketing expenses decreased by $0.5million, or 14%, from $3.6 million to $3.1 million from 2007 to 2008,respectively. Sales and marketing expenses at GT&T declined $0.7 million inthe third quarter of 2008, as compared to the same period in 2007. Throughout2007, GT&T incurred an unusually high level of sales and marketing costs inresponse to increased wireless competition, including wireless handsetpromotions, increased advertising and higher sales commissions.  In 2008, GT&T’s sales and marketingexpenses returned to a lower level. While we do not think that these expensesare likely to return to 2007 levels, it is hard to predict changes in thecompetitive environment and therefore there may be large fluctuations in theseexpenses in future periods.  The decreasein GT&T’s sales and marketing expenses was partially offset by BDC’s salesand marketing expenses which we began to consolidate effective May 15,2008.

 

*General and administrativeexpenses.*General andadministrative expenses include salaries, benefits and related costs forgeneral corporate functions, including executive management, finance andadministration, legal and regulatory, facilities, information technology andhuman resources.

* *

*General and administrative expenses increased $1.4 million,or 24%, from $5.8 million to $7.2 million from 2007 to 2008.  The consolidation of BDC’s operating results includedan increase of $1.9 million which was partially offset by lower costs atCommnet. We expect general and administrative expenses to increase in thefuture to support our growth but remain fairly consistent and in proportion toexpected changes in to our consolidated revenues.*

* *

*Depreciation and amortizationexpenses.* Depreciation and amortization expenses representthe depreciation and amortization charges we record on our property andequipment and on our intangible assets.

 

Depreciation and amortization expenses increased by$1.5 million, or 22%, from $6.8 million to $8.3 million for 2007 and 2008,respectively. The increase was primarily due to the addition of fixed assetsfrom our network expansion in our rural U.S. wireless business and Guyana, theconsolidation of BDC’s results and the acquisitions of ION and Islandcom. Weexpect that depreciation and amortization expenses will increase in thenear-term, because of continued capital expenditures to expand our networks.

 

*Gain/Loss on disposition oflong-lived assets.*During the third quarter of 2007, the Company sold assets in Haiti resulting ina loss of $0.3 million. There were no dispositions in 2008.

 

*Interest expense.*Interest expense represents interest incurred on our outstanding creditfacilities.  On September 10, 2008, theCompany repaid the then outstanding $50.0 million term loan with the proceedsfrom a new $75.0 million term loan.  Atthe same time, the Company’s line of credit facility expanded from $20.0million to $75.0 million. Further description of the new credit facility is setforth in Note 7, “Credit Facilities” to the Consolidated Financial Statementsincluded in this Report.  Also during September 2008,the Company executed an interest rate swap which is further detailed in Note 8,“Derivative Instruments and Hedging Activities” to the Consolidated FinancialStatements included in this Report.

 

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Interest expenseremained at $0.7 for the three months ended 2007 and 2008.  We had no outstanding borrowings under ourrevolving lines of credit during the third quarters of 2007 and 2008.

 

*Interestincome*. Interest income represents interest earned on ourcash, cash equivalent and marketable securities.

 

Interest incomedecreased $0.4 million from $0.7 million for third quarter of 2007 to $0.3million in 2008.  The decrease was aresult of a decrease in the rate of interest earned on cash and investments.

 

*Otherincome (expense).*Other income (expense) representsmiscellaneous non-operational income we earned or expenses we incurred.Included in other income for 2007 were management fees received from BDC which,for 2008, were eliminated in consolidation. Other income decreased by $0.3million in 2008 as a result of accounting for the elimination in consolidationof BDC management fees after May 15, 2008. We expect other income to decrease in the future as a result of theconsolidation accounting.

 

*Income taxes.***Income taxes represent taxes we pay onour net taxable income.

 

The effectivetax rate was 45% for 2007 and 43% for 2008. Income tax expense includes tax at the statutory U.S. federal and stateincome tax rates as well as the Guyanese income taxes in excess of thestatutory U.S. income tax rates. The effective tax rate is impacted by thereceipt of foreign dividends and by the amortization of a deferred tax asset,relating to differences between book and tax basis of fixed assets, which wasrecorded in a prior period. For the three months ended September 30, 2008,the effective tax rate was positively impacted by the consolidation of theoperating results of BDC (which operates in a no-tax jurisdiction), growth intaxable income in our U.S. operations and reduced losses in the U.S. VirginIslands.  We expect that our effectivetax rate will be reduced over time if we are able to continue reducing lossesin the US Virgin Islands and grow taxable income at our newer U.S. operationsand our operations in Bermuda.

 

*Minority interests.*Minority interests consists of the Guyana government’s 20%interest in GT&T, a minority shareholder’s 4% interest in Sovernet, minorityshareholders’ 42% equity interest in BDC effective May 15, 2008 upon ourincreased equity interest in BDC and our consolidation of its operating resultsand other minority shareholders’ interests in certain consolidated subsidiariesof Commnet, Sovernet and BDC. Minority interests increased from $1.1 million to$1.3 million for 2007 and 2008, respectively, as a result of the consolidationof BDC’s operating results.

 

*Equity in earnings of unconsolidated affiliates.*Equity in earnings of unconsolidated affiliates included our share of theearnings of BDC prior to our consolidation of BDC’s operating results in May 2008,as well as our share of the earnings of Commnet’s unconsolidated affiliates.Equity in earnings of unconsolidated affiliates decreased from $0.7 million for2007 to zero for 2008 as a result of the consolidation of BDC’s operatingresults. We expect equity in earnings of unconsolidated affiliates to remain atzero in future periods as the result of the consolidation of BDC’s operatingresults.

 

*Netincome.*As a result of the above factors, net incomeincreased by $0.7 million or 7% from $9.4 million for 2007 to $10.1  million for 2008. On a per share basis, netincome increased from $0.62 per basic and $0.61 per diluted share to $0.67 perbasic and $0.66 per diluted share from 2007 to 2008, respectively.

 

*Segment results.*Wehave five material operating segments, which we manage and evaluate separately:(1) Integrated Telephony — International; (2) Rural Wireless; (3) IslandWireless; (4) Integrated Telephony — Domestic; and (5) WirelessTelevision and Data. Island Wireless became an operating segment uponcompletion of BDC’s share repurchase and resulting increase in our equityinterest in BDC, effective May 15, 2008. Segment results are set forth in Note 11”Segment Reporting” to theConsolidated Financial Statements included in this Report.

 

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***Nine months Ended September 30, 2008 and 2007***

 
| ** **                                                                                              | ** ** | **Nine months Ended  September 30,** | ** ** | **Amount of  Increase** | ** ** | **Percent  Increase** | ** ** |
|---------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|------------------------------|------------|-----------------------|------------|
| ** **                                                                                              | ** ** | **2007**                                            | ** ** | **2008**                     | ** ** | **(Decrease)**        | ** ** | **(Decrease)** | ** ** |
| ** **                                                                                              | ** ** | **(In thousands)**                             | ** ** |
| **REVENUE:**                                                                                            |       |                                                |       |                         |       |                  |       |   |   |
| Wireless                                                                                                |       | $                                                   | 60,662     |                         | $          | 74,927                |       | $ | 14,265 |   | 23.5 |   |
| Local telephone and data                                                                                |       | 34,148                                              |       | 37,321                       |       | 3,173                 |       | 9.3 |   |
| International long distance                                                                             |       | 39,309                                              |       | 36,736                       |       | (2,573                | )          | (6.5 | ) |
| Other                                                                                                   |       | 3,053                                               |       | 2,968                        |       | (85                   | )          | (2.8 | ) |
| Total revenue                                                                                           |       | 137,172                                             |       | 151,952                      |       | 14,780                |       | 10.8 |   |
| **OPERATING EXPENSES:**                                                                                 | ** ** | ** **                                          | ** ** | ** **                   | ** ** | ** **            | ** ** | ** ** | ** ** |
| Termination and access fees                                                                             |       | 22,200                                              |       | 25,544                       |       | 3,344                 |       | 15.1 |   |
| Internet and programming                                                                                |       | 2,524                                               |       | 2,631                        |       | 107                   |       | 4.2 |   |
| Engineering and operations                                                                              |       | 16,893                                              |       | 18,217                       |       | 1,324                 |       | 7.8 |   |
| Sales and marketing                                                                                     |       | 12,352                                              |       | 8,741                        |       | (3,611                | )          | (29.2 | ) |
| General and administrative                                                                              |       | 17,292                                              |       | 19,961                       |       | 2,669                 |       | 15.4 |   |
| Depreciation and amortization                                                                           |       | 19,975                                              |       | 22,790                       |       | 2,815                 |       | 14.1 |   |
| Gain on disposition of long-lived assets                                                                |       | (917                                                | )          | 0                            |       | 917                   |       | 100.0 |   |
| Total operating expenses                                                                                |       | 90,319                                              |       | 97,884                       |       | 7,565                 |       | 8.4 |   |
| Income from operations                                                                                  |       | 46,853                                              |       | 54,068                       |       | 7,215                 |       | 15.4 |   |
| **OTHER INCOME (EXPENSE):**                                                                             | ** ** | ** **                                          | ** ** | ** **                   | ** ** | ** **            | ** ** | ** ** | ** ** |
| Interest expense                                                                                        |       | (1,596                                              | )          | (2,049                       | )          | (453                  | )          | (28.4 | ) |
| Interest income                                                                                         |       | 1,814                                               |       | 1,322                        |       | (492                  | )          | (27.1 | ) |
| Other income, net                                                                                       |       | 2,052                                               |       | 364                          |       | (1,688                | )          | (82.3 | ) |
| Other income (expense), net                                                                             |       | 2,270                                               |       | (363                         | )          | (2,633                | )          | (116.0 | ) |
| **INCOME BEFORE INCOME TAXES, MINORITY  INTERESTS AND EQUITY IN EARNINGS OF UNCONSOLIDATED AFFILIATES** |       | 49,123                                              |       | 53,705                       |       | 4,582                 |       | 9.3 |   |
| Income taxes                                                                                            |       | 21,778                                              |       | 22,570                       |       | 792                   |       | 3.6 |   |
| **INCOME BEFORE MINORITY INTERESTS AND EQUITY  IN EARNINGS OF UNCONSOLIDATED AFFILIATES**               |       | 27,345                                              |       | 31,135                       |       | 3,790                 |       | 13.9 |   |
| Minority interests, net of tax                                                                          |       | (3,762                                              | )          | (3,659                       | )          | 103                   |       | 2.7 |   |
| Equity in earnings of unconsolidated  affiliates, net of tax                                  |       | 1,766                                               |       | 735                          |       | (1,031                | )          | (58.4 | ) |
| **NET INCOME**                                                                                          |       | $                                                   | 25,349     |                         | $          | 28,211                |       | $ | 2,862 |   | 11.3 |   |

 

*Wireless revenue*.  Wireless revenue increased to $74.9 millionfor the nine months ended September 30, 2008 from $60.7 million for thenine months ended September 30, 2007, an increase of $14.2 million, or23%.

 

Notwithstandingthe sale of 59 base stations during the fourth quarter of 2007, our rural U.S.business increased its revenues by $10.6 million, or 26%, to $51.3 million from$40.7 million. The increase in revenue from our U.S. wireless business was dueprimarily to growth in voice and data traffic at existing sites, as well as thecontinued deployment of additional GSM and CDMA wireless base stations thatgenerated additional minutes of use and increased data revenue.  Also included in this increase was $1.6million of switching fees earned on the 59 sold base stations. As of September 30,2008 a total of 396 base stations were deployed as compared to 333 basestations as of September 30, 2007. Of the 396 total base stations, allwere GSM and CDMA base stations as of September 30, 2008, as compared to287 GSM and CDMA base stations as of September 30, 2007.

 

Theconsolidation of our BDC operating results which began as of May 15, 2008 contributed$8.1 million of the increase in wireless revenue.

 

Theincrease in wireless revenue from our rural U.S. operations and BDC waspartially offset by a decline in wireless revenue in Guyana. As discussedpreviously, a large regional wireless operator entered the market in late 2006with aggressive marketing campaigns and handset subsidies.  This decline in revenue in the first ninemonths of 2008 reflects the continued impact of that competition, a decrease inrates and the introduction of per second billing in March 2007 for allwireless calls. This additional competition in Guyana caused our wirelesssubscribers to decrease by 57,000, or 17%, from 330,000 subscribers as of September 30,2007 to 273,000 subscribers as of September 30, 2008, respectively. Thesefactors resulted in a $4.3 million decrease in GT&T’s wireless revenue from$19.9 million during the first nine months of 2007 to $15.6 million during thesame period of 2008.

 

*Local telephone and data revenue.*Local telephone and data revenue increased by$3.2 million, or 9%, to $37.3 million for 2008 from $34.1 million for 2007. Theincrease is primarily attributable to growth in GT&T’s access lines inGuyana from approximately 127,000 lines as of September 30, 2007 toapproximately 136,000 lines as of September 30, 2008 (an increase of 7%),increased interconnect fees, growth in broadband data customers in Guyana andcontinued strong growth in wireless broadband customers in the U.S. VirginIslands.  Sovernet increased revenues by$0.6 million, due mainly to the addition of ION on August 15, 2008.Sovernet continues to add business customers for its voice and data servicesand improve profitability, however, its overall revenue increase is partiallyoffset by the decline in its residential data business, particularly itsdial-up internet services.

* *

*International long distance revenue. *International long distancerevenue was $36.7 million during the nine months ended September 30, 2008,a decrease of $2.6 million, or 7%, from $39.3 million in 2007. This decreasewas partly a result of certain significant events during the nine months ended September 30,2007, such as the run up to Guyana’s hosting of Cricket World Cup 

 

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matches and the Rio Group Summit, which we believeincreased traffic volumes during that period. We are also subject to illegal bypass via internet calling, which webelieve increased considerably in the second and third quarters of 2008 andcompete against alternative and cheaper media for communication, such as e-mailand text messaging. These other modes of communication may cause a decline inboth voice traffic and in international long distance revenues in futureperiods, although we may see a slight increase in traffic and revenues if weare effective in combating illegal bypass. The outcome of negotiations with the Government of Guyana regarding theexclusivity terms of GT&T’s license is also likely to negatively impactthis revenue in the future.

 

*Other revenue*. Other revenue represents revenue from digital televisionservices in the U.S. Virgin Islands, which declined $0.1 million to $3.0million for the first nine months of 2008, from $3.1million for 2007. Ourgrowth in revenue from our wireless digital television services is expected tocontinue to slow in the future as a result of minimal anticipated futuresubscriber and market share growth within our currently existing geographicfootprint.

 

*Termination and access fee expenses*.Termination and access fee expenses increasedby $3.3 million, or 15%, from $22.2 million to $25.5 million from 2007 to 2008,respectively as a result of increased traffic at Commnet, the consolidation ofBDC’s results of operations and an increase in expenses at Sovernet due to theoperating results of its August 2008 acquisition of ION. This increase,was however, partially offset by a decrease in traffic at GT&T.

* *

*Internet and programming expenses.*Internet and programming expenses increasedmodestly from $2.5 million in 2007 to $2.6 million in 2008. This increase wasprimarily from the growth in our broadband data and television subscribers inthe U.S. Virgin Islands.

* *

*Engineering and operations expenses.*Engineering and operations expenses increasedby $1.3 million, or 8%, from $16.9 million to $18.2 million for 2007 to 2008,respectively. This increase is primarily the result of the expansion of ourwireless networks in the United States and Guyana as well as the consolidationof BDC.

* *

Sales and marketing expenses. Sales andmarketing expenses decreased by $3.7 million, or 30%, from $12.4 million to$8.7 million from 2007 to 2008, respectively. Throughout 2007, GT&Tincurred an unusually high level of sales and marketing costs as a response toincreased wireless competition, including wireless handset promotions,increased advertising and higher sales commissions.  In 2008, GT&T’s sales and marketingexpenses returned to a lower level.  Thedecrease in GT&T’s sales and marketing expenses was partially offset byBDC’s sales and marketing expenses which we began to consolidate effective May 15,2008.

 

*General and administrative expenses.*General and administrative expenses increased $2.7million, or 16%, from $17.3 million in 2007 to $20.0 million in 2008.  The consolidation of our BDC subsidiaryaccounted for substantially all of this increase.

* *

*Depreciation and amortization expenses.*Depreciation and amortization expenses increased by $2.8 million, or 14%, from$20.0 million to $22.8 million for 2007 and 2008, respectively. The increase isprimarily due to the addition of fixed assets from our network expansion in ourrural U.S. wireless business and Guyana, the consolidation of BDC’s results,and the acquisitions of ION and Islandcom.

 

*Gain on disposition of long-lived assets.* During the nine months ended September 30,2007, our rural U.S. wireless operations sold certain assets resulting in again on such sales of $1.2 million. This gain was offset by a loss of $0.3million resulting from the Company’s sale of assets in Haiti.

 

*Interestexpense.* Interest expense increased from $1.6 million for2007 to $2.0 million for 2008. The increase in interest expense was due to apatronage credit adjustment received from our senior lender in the firstquarter of 2007. We had no outstanding borrowings under our revolving lines ofcredit during 2007 or 2008.

 

*Interestincome*.  Interestincome decreased $0.5 million, or 28% from $1.8 million in 2007 to $1.3 millionin 2008.  The reduction is a result of adecrease in the interest earned on cash and investments for the first ninemonths of 2008.

 

*Otherincome (expense).*Other income decreased from $2.1 million in2007 to $0.4 million in 2008 as a result of a $1.3 million license settlementat Commnet during 2007, as well as the elimination, in consolidation, managementfees from BDC following their consolidation in May 2008.

 

*Income taxes.*** Theeffective tax rate was 44% for 2007 and 42% for 2008.  Income tax expense includes tax at thestatutory U.S. federal and state income tax rates as well as the Guyaneseincome taxes in excess of the statutory U.S. income tax rates. The effectivetax rate is impacted by the receipt of foreign dividends and by theamortization of a deferred tax asset, relating to differences between book andtax basis of fixed assets, which was recorded in a prior period. For the ninemonths ended September 30, 2008, the effective tax rate was negativelyimpacted by an increase in foreign dividends as compared to the same period in2007.

 

*Minority interests.*Minority interests consists of the Guyana government’s 20%interest in GT&T, a minority shareholder’s 4% interest in Sovernet,minority shareholders’ 42% equity interest in BDC effective May 15, 2008upon our increased equity interest in BDC and our consolidation of itsoperating results and other minority shareholders’ interests in certainconsolidated subsidiaries of Commnet. Minority interests remained relativelyunchanged at $3.8 million and3.7million for 2007 and 2008, respectively.

 

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*Equity in earnings of unconsolidated affiliates.*Equity in earnings of unconsolidated affiliates decreased $1.1 million, or 61%from $1.8 million for 2007 to $0.7 million for 2008 as a result of theconsolidation of BDC.

 

*Netincome.*As a result of the above factors, net incomeincreased by $2.9 million or 11% from $25.3 million for 2007 to $28.2 millionfor 2008. On a per share basis, net income increased from $1.67 per basic and$1.66 per diluted share to $1.86 per basic and $1.85 per diluted share from2007 to 2008, respectively.

 

*Segment results.*Wehave five material operating segments, which we manage and evaluate separately:(1) Integrated Telephony — International; (2) Rural Wireless; (3) IslandWireless; (4) Integrated Telephony — Domestic; and (5) WirelessTelevision and Data. Island Wireless became an operating request uponcompletion of BDC’s share repurchase and resulting increase in the Company’sequity interest in BDC, effective May 15, 2008.  Segment results are set forth in Note 11”SegmentReporting” to the Consolidated Financial Statements included in this Report.

 

**Regulatoryand Tax Issues**

** **

Weare involved in a number of regulatory and tax proceedings. See Note 13 to the ConsolidatedFinancial Statements included in this Report. A material and adverse outcome inone or more of these proceedings could have a material adverse impact on ourfinancial condition and future operations.

 

**Liquidityand Capital Resources**

** **

Wehave met our operational liquidity needs through a combination of cash on handand internally generated funds and have funded capital expenditures andacquisitions with a combination of internally generated funds, cash on hand andborrowings under our credit facility.

 

***Uses of Cash***

*** ***

*Capital Expenditures.*A significant use of our cash has been for capitalexpenditures for expanding and upgrading our networks. For the nine monthsended September 30, 2007 and 2008, we spent approximately $31.2 millionand $34.6 million on capital expenditures, respectively.  Of the $34.6 million of 2008 capitalexpenditures, we spent approximately $19.1 million expanding Commnet’s networkby increasing the number of GSM and CDMA base stations as well as switching andcell site equipment required to expand our geographic coverage and technicalcapabilities. In addition, approximately $13.8 million was incurred expandingthe capacity and coverage of our wireline and wireless network in Guyana. Wealso spent $0.4 million at Sovernet and expanded our service areas and switchcapabilities.

* *

*Duringthe first quarter of 2008, we were awarded the right to acquire, for $3.0million, certain spectrum in connection with our participation in the FCC’sauction (FCC Auction No. 73) of 700 MHz spectrum being re-claimed by theFCC from the broadcast industry and sold by the FCC to wireless operators.  This amount is included in Other Assets inour consolidated balance sheet as of September 30, 2008 and was deductedfrom net cash provided by operating income in the statement of cash flows. Itwill be reclassified to Licenses, and considered a capital expenditure, uponthe finalization of such award, expected to occur during the first quarter of2009.*

* *

Weare continuing to invest in expanding our networks of GT&T, Commnet,Sovernet and BDC and expect to incur capital expenditures between $45 millionand $48 million, with over one-half used in connection with Commnet’s networkexpansion during the year ended December 31, 2008. While final plans andcosts are not yet complete, we could incur up to an additional $5 million to $10million of capital expenditures in 2008 as we continue to evaluate plans toland a submarine fiber optic cable in Guyana. Our total capital expenditureestimates above assume the low end of this range and total capital expendituresassociated with this project over the next 18 months could range from $20million to $30 million. We expect to fund these expenditures primarily fromcash generated from our operations.

 

*Acquisitions and Investments.*We have funded our recent acquisitions with acombination of cash on hand and borrowings under our credit facilities.

* *

*DuringJanuary 2007, we purchased the remaining 5% equity interest in Commnet for$6.5 million and 21,000 shares of our common stock in satisfaction of ourobligation (and in accordance with our right) under and consistent with theterms of the agreement entered into in connection with our acquisition ofCommnet in September 2005. We funded this purchase with cash on hand andthe reissuance of shares held in our treasury.*

* *

On May 15, 2008, ourequity interest in BDC increased from 43% to 58% as a result of BDC’srepurchase of $17.0 million of shares from other shareholders.  We funded the transaction with a loan to BDCfrom cash on hand.

 

On August 15, 2008,Sovernet completed its acquisition of 75% of the equity of ION, LLC, an NewYork state provider of high capacity communications network transport servicesfor $5.6 million in cash.  Theacquisition of ION continues the 

 

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Company’s strategy of providing high qualitynetwork services to underserved rural markets. Beginning with the acquisitiondate, the Company began consolidating the results of ION, LLC in its results ofoperations.

 

On September 1, 2008,BDC completed its acquisition of 42% of the equity of Islandcom, a provider ofwireless telecommunication services in Turks & Caicos for $6.0 millionin cash.  If current laws, which restrictforeign ownership of companies operating in Turks & Caicos, arechanged, BDC will be able to increase its ownership in Islandcom from 42% to76% through the exercise of a warrant received as a part of theacquisition.  Since officers of ATN andBDC make up a majority of Islandcom’s board of directors, the Company isconsolidating the operating results of Islandcom since the date of acquisition.

 

*Wecontinue to explore opportunities to acquire communications properties orlicenses in the Caribbean, the United States and elsewhere. We also exploreopportunities to substantially expand our existing networks in the UnitedStates and the Caribbean including the plan to land a submarine cable to Guyanaas mentioned earlier. Such acquisitions may require external financing. Whilethere can be no assurance as to whether, when or on what terms we will be ableto acquire any such businesses or licenses, such acquisitions may beaccomplished through the issuance of shares, payment of cash or incurrence ofadditional debt.*

* *

*Dividends.*We use cash on hand to make dividend payments to ourcommon stockholders when declared by our Board of Directors. For the ninemonths ended September 30, 2008, our dividends to our stockholdersapproximated $9.8 million (which reflects dividends paid on October 14,2008). We have paid quarterly dividends for the last 40 fiscal quarters.

* *

*Stock Repurchase Plan*. Our Board of Directors approved a $5.0 millionstock buyback plan in September 2004 pursuant to which we have spent todate $2.1 million repurchasing common stock. During the second quarter of 2008, we repurchased 42,351 shares for $1.2million. We may repurchase shares at any time depending on market conditions,our available cash and our cash needs.

* *

***Sources of Cash***

*** ***

*Total Liquidity at September 30, 2008*. As of September 30, 2008, we had approximately$72.3 million in cash and cash equivalents, an increase of $1.1 million fromthe December 31, 2007 balance of $71.2 million. In addition, as of September 30,2008, we had $5.4 million in short-term marketable securities.  We believe our existing cash balances andother capital resources, including the $75.0 million available under ourrevolving line of credit included in our credit facility, are adequate to meetour current operating and capital needs.

* *

*Cash Generated by Operations.*Cash provided by operating activities was $39.6million for the nine months ended September 30, 2008 compared to $44.7million for the nine months ended September 30, 2007.  The decrease of $5.1 million was due to a$3.0 million deposit made in connection with FCC Auction No. 73 asdiscussed above and the timing of certain domestic income tax payments.

* *

*Credit Facility and Interest Rate Swap.**  ******  ***OnSeptember 10, 2008, the Company, as borrower entered into a creditagreement with CoBank, ACB and other lenders as referenced within the creditagreement (the “2008 CoBank Credit Agreement”). The 2008 CoBank Credit Agreement replaced the previous credit facilityand provides a $75 million term loan (the “2008 Term Loan”) as well as a $75million revolving credit facility (the “2008 Revolver Facility”, together withthe 2008 Term Loan, the “2008 Credit Facility”).

 

The 2008 TermLoan matures on September 10, 2015 and requires quarterly repayments ofprincipal of $0.2 million through June 30, 2013 and quarterly repaymentsof principal of $1.4 million from September 30, 2013 to June 30,2015.  The remaining outstandingprincipal balance is to be repaid on September 10, 2015 when the 2008 TermLoan matures.  The 2008 Revolver Facilitymatures on September 10, 2014 and includes a $5 million letter of creditfacility.

 

All borrowingsunder the 2008 Credit Facility bear interest at a rate, selected by the Companyfrom one of the options as defined with the agreement, plus a margin. Suchinterest rate options include i) a base rate, defined as the greater of theprime rate or the federal funds rate plus 0.5%, or ii) a LIBOR rate.  Margins for base rate borrowings range from0% to 0.5%, depending upon the Company’s leverage ratio while margins for LIBORborrowings range from 1.25% to 2% also depending upon the Company’s leverageratio.  Borrowings as of September 30,2008, including the interest rate swap agreement in Note 8, were bearing aweighted average interest rate of 5.50%.

 

The 2008Credit Facility is guaranteed by the Company’s Commnet and Sovernetsubsidiaries and is collateralized by a security interest in substantially allof the assets of and stock owned by the Company.

 

On September 23,2008 the Company executed a forward starting interest rate swap.  The Company’s objective in using thederivative is to add stability to interest expense and to manage its exposureto adverse changes in interest rates. The interest rate swap has an initialnotional amount of $68 million, receives 1 month LIBOR, and pays a fixed rateof 4.42%.  The interest rate swapeffectively converts the variable interest payments on,  the first $68 million of the 2008 Term Loan toa fixed rate of 4.42% plus any credit spread, if applicable, 

 

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over the life of the agreement.  The interest rate swap has an effective dateof October 15, 2008, and a maturity date of September 15, 2015.

 

***FactorsAffecting Sources of Liquidity***

*** ***

*InternallyGenerated Funds.*   The key factors affectingour internally generated funds are demand for our services, competition,regulatory developments, economic conditions in the markets where we operateour businesses and industry trends within the telecommunications industry. Fora discussion of tax and regulatory risks in Guyana that could have a materialadverse impact on our liquidity, see “Business—Risk Factors—Risks Relating toOur Wireless and Wireline Services in Guyana” in our 2007 Form 10-K, “—Regulationof Our GT&T Subsidiary” in our 2007 Form 10-K and Note 13 to theConsolidated Financial Statements included in this Report.

 

*Guyana—U.S. Foreign Currency Exchange.*   GT&T’s functional currency is the U.S.dollar because a majority of GT&T’s revenues and expenditures havehistorically been transacted in U.S. dollars. Since 2004 through September 2008,the value of the Guyana dollar has remained at $205 Guyana dollars to one U.S.dollar so we have not experienced any foreign currency gains or losses duringthose periods. If this exchange rate was to fluctuate in the future, this wouldaffect our results of operations to the extent we are required to remeasure anymonetary assets or liabilities denominated in Guyana dollars. Moreover, withthe potential for competition in international services in the future, combinedwith the increases that GT&T hopes to have in local revenue which is billedin Guyana dollars, it is possible that the Guyana dollar will become GT&T’sfunctional currency at some point in the future. This would further expose usto foreign currency risk in the event of exchange rate fluctuations.

 

GT&T generally endeavorsto maintain a balance between its Guyana dollar cash deposits and localreceivables which are denominated in Guyana dollars and its local tax and otherpayables which are also denominated in the Guyana dollar. As of September 30,2008, GT&T maintained U.S. $13.7 million of its cash balances in Guyanadollars. See “Quantitative and Qualitative Disclosures about MarketRisk.”

 

*RestrictionsUnder Credit Facility.***The2008 Credit Agreement contains certain affirmative and negative covenants ofthe Company and its subsidiaries.  Amongother things, these covenants restrict the Company’s ability to incuradditional debt in the future or to incur liens on its property.  The 2008 Credit Agreement also requires theCompany to maintain certain financial ratios including a net leverage ratio ofless than or equal to 3.0 to 1, an interest coverage ratio of greater than orequal to 3.5 to 1 and an equity to assets ratio of greater than or equal to 0.4to 1.  As of September 30, 2008, theCompany was in compliance with all of the covenants of the 2008 CoBank CreditAgreement.

 

***Capital Markets.***   Our ability toraise funds in the capital markets depends on, among other things, generaleconomic conditions, the conditions of the telecommunications industry, our financialperformance and the state of the capital markets. In September 2006, theSecurities and Exchange Commission declared effective a “universal” shelfregistration statement filed by the Company. This shelf registration statementregistered the potential future offerings by us, from time to time, of up to anaggregate of $200 million of our securities, consisting potentially ofcommon stock, debt securities, and other equity and convertible securities andcombinations of the foregoing. Following our July 2006 equity offeringwhich was conducted pursuant to the shelf registration statement, we haveapproximately $150 million of securities registered for potential futureofferings.

*** ***

***Inflation***

*** ***

Wedo not believe that inflation has had a significant impact on our consolidatedoperations in any of the periods presented in the Report.

 

***Recent AccountingPronouncements***

*** ***

In September 2008,the FASB issued FASB Staff Position (FSP) No. EITF 03-6-1, *Determining Whether Instruments Granted in Share-Based Payment TransactionsAre Participating Securities* (“FSP No. EITF 03-6-1”). Under theprovisions of this standard, unvested awards of share-based payments withnon-forfeitable rights to receive dividends or dividend equivalents areconsidered participating securities for purposes of calculating earnings pershare. FSP No. EITF 03-6-1 is effective for financial statements issuedfor fiscal years and interim periods beginning after December 15, 2008. Asour unvested awards of share-based payments’ rights to receive dividends ordividend equivalents are forfeitable, the adoption of FSP No. EITF 03-6-1will not have an impact on our consolidated financial statements.

 

InApril 2008, the FASB issued FSP No. 142-3, *Determination of the Useful Life of Intangible Assets*(“FSP 142-3”), which amends thefactors that must be considered in developing renewal or extension assumptionsused to determine the useful life over which to amortize the cost of arecognized intangible asset under SFAS 142. FSP 142-3 amends paragraph 11(d) ofSFAS 142 to require an entity to consider its own assumptions about renewal orextension of the term of the arrangement, consistent with its expected use ofthe asset. The FSP also requires the incremental disclosures for renewableintangible assets

 

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FSP 142-3 is effectivefor financial statements for fiscal years beginning after December 15,2008. The guidance for determining the useful life of a recognized intangibleasset must be applied prospectively to intangible assets acquired after theeffective date. Early adoption is prohibited. Accordingly, FSP 142-3 would notserve as a basis to change the useful life of an intangible asset that wasacquired prior to the effective date (January 1, 2009 for ATN). However,the incremental disclosure requirements described above would apply to allintangible assets, including those recognized in periods prior to the effectivedate of FSP 142-3. We are currently evaluating the impact that the adoption ofFSP 142-3 will have on our consolidated financial statements.

 

In March 2008, theFASB issued SFAS No. 161, *Disclosures aboutDerivative Instruments and Hedging Activities - an amendment of FASB Statement No. 133*(“SFAS 161”).  SFAS 161 amends and expands the disclosurerequirements of Statement 133 to provide a better understanding of how and whyan entity uses derivative instruments, how derivative instruments and relatedhedged items are accounted for, and their effect on an entity’s financialposition, financial performance, and cash flows.  SFAS 161 iseffective for fiscal years beginning after November 15, 2008.  We do not expect that the adoption of SFAS161 will have a material impact on our consolidated financial statements.

 

Effective January 1, 2008, we implemented Statement of FinancialAccounting Standard No. 157, *Fair ValueMeasurement* (“SFAS 157”), for our financial assets andliabilities that are re-measured and reported at fair value at each reportingperiod, and non-financial assets and liabilities that are re-measured andreported at fair value at least annually. In accordance with the provisions ofFASB staff position No. FAS 157-2, *EffectiveDate of FASB Statement No. 157,*we have elected to deferimplementation of SFAS 157 as it relates to all of our non-financialassets and non-financial liabilities that are recognized and disclosed at fairvalue in the financial statements on a nonrecurring basis until January 1,2009. We are evaluating the impact, if any, this standard will have on ournon-financial assets and liabilities. The adoption of SFAS 157 to ourfinancial assets and liabilities and non-financial assets and liabilities thatare re-measured and reported at fair value at least annually did not have amaterial impact on our consolidated financial results.

 

Effective January 1,2008, we adopted SFAS No. 159, *The Fair Value Option forFinancial Assets and Financial Liabilities* (“SFAS 159”). SFAS 159permits entities to choose to measure certain financial instruments and othereligible items at fair value when the items are not otherwise currentlyrequired to be measured at fair value. Upon adoption, we did not elect the fairvalue option for any new items within the scope of SFAS 159 and, therefore, theadoption of SFAS 159 did not have an impact on our consolidated financialstatements.

 

In December 2007,the FASB issued SFAS No. 141 (revised 2007), *BusinessCombinations* (“SFAS 141R”). SFAS 141R addresses the recognition andaccounting for identifiable assets acquired, liabilities assumed, andnoncontrolling interests in business combinations. SFAS 141R also establishesexpanded disclosure requirements for business combinations. SFAS 141R iseffective for us on January 1, 2009, and we will apply SFAS 141Rprospectively to all business combinations subsequent to the effectivedate.  We are currently evaluating theimpact that the adoption of SFAS 141R will have on our consolidated financialstatements.

 

In December 2007,the FASB issued SFAS No. 160, *Noncontrolling Interestsin Consolidated Financial Statements - an amendment of ARB No. 51*(“SFAS 160”). SFAS 160 establishes accounting and reporting standards for thenoncontrolling interest in a subsidiary and for the deconsolidation of asubsidiary.  SFAS 160 requires that noncontrolling interests insubsidiaries be reported in the equity section of the controlling company’sbalance sheet. It also changes the manner in which the net income of the subsidiaryis reported and disclosed in the controlling company’s income statement. SFAS160 is effective for fiscal years beginning after December 15, 2008. Weare currently evaluating the impact that the adoption of SFAS 160 will have onour consolidated financial statements.

 

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**Item 3. Quantitative and QualitativeDisclosures about Market Risk**

 

*Foreign Currency -* GT&T’s functional currency is the U.S. dollar because a majorityof GT&T’s revenues and expenditures have historically been transacted inU.S. dollars. Since 2004 through March 2008, the value of the Guyanadollar has remained at $205 Guyana dollars to one U.S. dollar so we have notexperienced any foreign currency gains or losses during those periods. If thisexchange rate was to fluctuate in the future, this would affect our results ofoperations to the extent we are required to remeasure any monetary assets orliabilities denominated in Guyana dollars. Moreover, with the potential forcompetition in international services in the future, combined with plannedincreases in local revenue which is billed in Guyana dollars, it is possiblethat the Guyana dollar will become GT&T’s functional currency at some pointin the future. This would further expose us to foreign currency risk in theevent of future exchange rate fluctuations.

 

GT&T generally endeavorsto maintain a balance between its Guyana dollar cash deposits and local receivableswhich are denominated in Guyana dollars and its local tax and other payableswhich are also denominated in the Guyana dollar. As of September 30, 2008,GT&T maintained U.S. $13.7 million of its cash balances in Guyana dollars.

 

*Interest Rates -* We maintain a portion of our cash and cash equivalents in short-termfinancial instruments that are subject to interest rate fluctuations. Due tothe relatively short duration of such instruments and the fact that ourvariable rate debt is hedged with an interest rate swap which is consideredfully effective, we believe that fluctuations in interest rates will notmaterially affect our financial condition or results of operations.

 

At September 30,2008 the Company’s interest rate swap, which qualifies as an effective cashflow hedge under SFAS 133, had a fair value of ($1,026,000) which was includedin other liabilities.  The change in netunrealized losses on the cash flow hedge reported in the consolidated statementsof changes in shareholders’ equity $1,026,000, net of income tax benefit of$390,000.  Amounts reported inaccumulated other comprehensive income related to the interest rate swap willbe reclassified to interest income as interest payments are received on theCompany’s variable-rate loan assets.

 

As of September 30,2008, we carried no other derivatives nor do we use derivatives for trading orspeculative purposes.

 

**Item 4. Controls and Procedures**

 

*Evaluation of disclosure controls andprocedures.*Our management, with the participation ofour principal executive officer and principal financial officer, evaluated theeffectiveness of our disclosure controls and procedures as of September 30,2008. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and15d-15(e) under the Exchange Act, means controls and other procedures of acompany that are designed to ensure that information required to be disclosedby a company in the reports that it files or submits under the Exchange Act isrecorded, processed, summarized and reported, within the time periods specifiedin the 

 

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SEC’s rules and forms.Disclosure controls and procedures include, without limitation, controls andprocedures designed to ensure that information required to be disclosed by acompany in the reports that it files or submits under the Exchange Act isaccumulated and communicated to the company’s management, including itsprincipal executive and principal financial officers, as appropriate to allowtimely decisions regarding required disclosure. Management recognizes that anycontrols and procedures, no matter how well designed and operated, can provideonly reasonable assurance of achieving their objectives and managementnecessarily applies its judgment in evaluating the cost-benefit relationship ofpossible controls and procedures. Based on the evaluation our disclosurecontrols and procedures as of September 30, 2008, our principal executiveofficer and principal financial officer concluded that, as of such date, ourdisclosure controls and procedures were effective at the reasonable assurancelevel.

 

*Changes in internal control over financialreporting.*There was no change in the internal controlover financial reporting that occurred during the three months ended September 30,2008 that has materially affected, or is reasonably likely to materiallyaffect, our internal control over financial reporting.

 

**PART II—OTHER INFORMATION**

 

**Item 1.Legal Proceedings**

 

SeeNote 13 to the Consolidated Financial Statements included in this Report.

 

**Item1A. Risk Factors**

 

Inaddition to the other information set forth in this Report, you shouldcarefully consider the factors discussed in Part I, “Item 1A. Risk Factors”in our 2007 Form 10-K, which could materially affect our business,financial condition or future results. The risks described in our 2007 Form 10-Kare not the only risks facing our Company. Additional risks and uncertaintiesnot currently known to us or that we currently deem to be immaterial alsomay materially adversely affect our business, financial condition and/oroperating results.

 

**Item 6.Exhibits**

 
| 3.1    |   | Restated Certificate of Incorporation (incorporated by reference to  Exhibit 4.1 to the Company’s Registration Statement on Form S-8  (File No. 333-62416) filed September 6, 2001)                                                                                                                                                                                     |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                             |
| 3.2    |   | Certificate of Amendment to the Restated Certificate of  Incorporation, as filed with the Delaware Secretary of State on August 14,  2006 (incorporated by reference to Exhibit 3.2 of the Company’s  Quarterly Report on Form 10-Q (File No. 001-12593) filed on  August 14, 2006)                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.1   |   | Atlantic Tele-Network, Inc. 2008 Equity Incentive Plan  (incorporated by reference to Appendix A of the Definitive Proxy Statement on  Schedule 14A (File No. 001-12593) filed on April 23, 2008).                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.2   |   | Form of Notice of Grant of Restricted Stock and Restricted Stock  Agreement (Non-Employee Directors) (incorporated by reference to  Exhibit 10.2 of the Company’s Current Report on Form 8-K (File  No. 001-12593) filed on May 15, 2008).                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.3   |   | Form of Notice of Grant of Restricted Stock and Restricted Stock  Agreement (incorporated by reference to Exhibit 10.3 of the Company’s Current  Report on Form 8-K (File No. 001-12593) filed on May 15,  2008).                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.4   |   | Form of Notice of Grant of Incentive Stock Option and Option  Agreement (incorporated by reference to Exhibit 10.4 of the Company’s Current  Report on Form 8-K (File No. 001-12593) filed on May 15,  2008).                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.5   |   | Form of Notice of Grant of Nonqualified Stock Option and Option  Agreement (incorporated by reference to Exhibit 10.5 of the Company’s Current  Report on Form 8-K (File No. 001-12593) filed on May 15,  2008).                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.6   |   | Credit Agreement dated as of September 10, 2008 by and between  Atlantic Tele-Network, Inc., as borrower, CoBank, ACB, as Administrative  Agent, Arranger and Issuing Lender, the Guarantors named therein and the other  Lenders named therein (incorporated by reference to Exhibit 10.1 of the  Company’s Current Report on Form 8-K (File No. 001-12593) filed on September  12, 2008). |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                             |
| 31.1   |   | Certification of Chief Executive Officer pursuant to  Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                             |
| 31.2   |   | Certification of Chief Financial Officer pursuant to  Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                             |
| 32.1   |   | Certification of Chief Executive Officer pursuant to 18 U.S.C.  Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                             |
| 32.2   |   | Certification of Chief Financial Officer pursuant to 18 U.S.C.  Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                    |

 

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**SIGNATURES**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 
|                          | Atlantic  Tele-Network, Inc.      |
|-------------------------------|----------------------------------------|
|                          |                                   |
| Date: November 10,  2008 | /s/ Michael  T. Prior                  |
|                          | Michael T.  Prior                      |
|                          | President  and Chief Executive Officer |
|                          |                                   |
| Date: November 10,  2008 | /s/ Justin  D. Benincasa               |
|                          | Justin D.  Benincasa                   |
|                          | Chief  Financial Officer and Treasurer |

 

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